Growing bad-debt problem illustrates broken billing system

Patient payment represents a growing share of health systems' revenue, putting consumers and providers in a precarious position, a new report finds.

Patient balance after insurance rose from 8% of the total bill responsibility in the first quarter of 2012 to 12.2% in the first quarter of 2017, according to new analysis from TransUnion Healthcare. Commercially insured patients saw their balance after insurance increase of 67% from $467 to $781. For Medicare beneficiaries, it increased from $144 to $314.

This trend led to an 88% increase in total hospital revenue attributed to patient balance after insurance over the 5-year period, the report found. When consumers can't pay for their growing share of their medical bills, providers are on the hook.

"A lot of patients can't afford these bills, which is why uncompensated care has bounced," said Jonathan Wiik, principal for healthcare strategy at TransUnion Healthcare. "It's tenuous."

Many patients choose to forego health insurance as employers shift more of skyrocketing healthcare costs on consumers through high-deductible health plans. Built-in administrative costs in virtually every sector of the industry have driven yearly healthcare cost increases.

It's also harder to get reimbursed as payers get more selective in what they pay for. As a result, providers' bad debt increases and consumers are caught in the middle.

Ballooning bad debt burdens, which typically is the difference between what providers billed patients and the amount those patients ultimately paid, have buffeted health system's balance sheets. Many providers have responded with significant investments in their billing process and revenue-cycle management, which can provide quicker return than more complex changes related to reducing clinical variation and tweaking governance structures. Some health systems are guaranteeing price estimates prior to receiving care, but those are largely exceptions to the rule as many providers don't have the resources or infrastructure to collect that data.

Uncompensated care jumped by $2.6 billion between 2015 and 2016 to $38.3 billion, according to the American Hospital Association. And with the repeal of the individual insurance mandate and Medicaid cuts, that trend will likely continue.

Medicare bad debt, which is the result of beneficiaries not paying their deductibles and co-insurance, increased 17% to $3.69 billion in 2016, up from $3.14 billion in 2012, according to CMS data.

Software companies are flooding the market with technology that aims to improve scheduling, automate the intake and processing of consumers' coverage, and streamline the billing process. Meanwhile, providers' cost to collect payment grows as their revenue-cycle infrastructure tries to catch up.

"There's a lack of coordination and comprehensiveness in revenue cycle across ambulatory and acute settings," said Sloan Clardy, president of technology solutions for nThrive, which provides revenue-cycle management.

The TransUnion report recommended engaging patients about payment earlier, even before care, to gauge their coverage level and financial situation. Providers can work with consumers to set up payment plans or see if they qualify for their charity care program.

Before writing it off as bad debt, see if patients qualify for commercial or public-payer coverage, the report said. Also, ensure prior authorization is in place before treatment.


Alex Kacik

Alex Kacik is the hospital operations reporter for Modern Healthcare in Chicago. Aside from hospital operations, he covers supply chain, legal and finance. Before joining Modern Healthcare in 2017, Kacik covered various business beats for seven years in the Santa Barbara, California region. He received a bachelor's degree in journalism from Cal Poly San Luis Obispo in Central California.

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