A new accounting rule was designed to eliminate bad debt in its previous form. But that old version of bad debt is actually alive and well—it just wears phony glasses and goes by a new name: implicit price concession.
Hospitals’ relationship with bad debt is very different from that of other industries. In manufacturing, bad debt is the price of something—an airplane, for example—that a customer didn’t pay for as anticipated. In healthcare, though, most of what’s reported as bad debt is money hospitals never expected to get in the first place. It’s the difference between their billed charges and the amount they actually collect from patients.
The accounting standard change was intended to more closely align bad-debt reporting across industries and globally so that they’re easier to compare. But hospitals are holding tight to the old way of reporting bad debt—the one that yields a large number—in part because it’s how they demonstrate the benefit they impart on communities. The new version of bad debt, if hospitals are hewing strictly to the rules, is going to be far smaller than the old version. In some cases it won’t show up at all.
And the value may vary depending on where it’s being reported. The accounting rule governs how organizations handle bad debt on financial statements, but in other reporting, like Medicare cost reports and federal tax forms, hospitals are still largely documenting bad debt under the former methodology with the new title, implicit price concession.