Hospitals' uncompensated care and unreimbursed costs increased from 2015 to 2018, albeit at a slower rate since 2016, according to new data.
Total uncompensated care and reimbursement shortfalls, which include free and discounted care for low-income patients plus bills that went unpaid as well as unreimbursed costs from Medicaid and Children's Health Insurance programs, averaged $12.8 million in 2018, up from $11.2 million in 2015, according to Definitive Healthcare's analysis of 3,855 hospitals. After an 8% increase from 2015 to 2016, the total uncompensated growth rate slowed to about 3% a year.
"A lot has to do with high-deductible health plans and co-insurance," said Kevin Holloran, senior director with Fitch Ratings. "Hospital CFOs I talk with say a $5,000 health plan is $5,000 in bad debt—most don't have the capacity to pay that back."
The Affordable Care Act was intended to curb uncompensated care as it extended coverage, but it seemingly has not offset higher out-of-pocket costs as high-deductible plans proliferate.
As a potential result of the individual mandate implementation in 2014, the insured population increased from 90.9% in 2015 to 92.1% in 2016 and 2017, according to the U.S. Census. But the share of insured dropped to 91.5% in 2018, possibly stemming from the repeal of the individual mandate's financial penalties, a decline in Medicaid coverage and the CMS cutting the budget for ACA marketing while it pushes association health plans. Many are still using the emergency department as a default healthcare option, which inflates out-of-pocket costs and hospitals' financial exposure.
The average deductible among workers with single coverage was $1,655 in 2019, which has tripled over the last decade, according to the Kaiser Family Foundation. Hospitals' bad debt levels will likely continue to rise as wage growth fails to keep pace with rising premiums, a new Moody's Investors Services report concluded.
Hospitals small and large, independent and system-owned are taking on more uncompensated care. Large hospitals with more than 250 beds saw their uncompensated/unreimbursed costs increase to $39.7 million in 2018, up from $33.2 million in 2015, growing at an average annual rate of 6.2%, according to Definitive data. Meanwhile, the average for hospitals with less than 25 beds reached $2.3 million in 2018, up from $1.8 million in 2015, increasing at an average annual rate of 8.5% a year.
Uncompensated/unreimbursed costs at system-owned hospitals reached $15.6 million in 2018, up from $13.7 million in 2015. That compared to independent hospitals' average of $5.8 million in 2018, rising from $4.9 million in 2015. The average annual increase at system-owned hospitals was 4.6%, compared to 6% at independent facilities.
"Uncompensated and unreimbursed costs may cause smaller, independent hospitals to struggle—particularly as IDNs and GPOs lend themselves to greater expense reduction—and this could forecast further consolidation," Kate Shamsuddin, senior vice president of strategy at Definitive, wrote in an email to Modern Healthcare.
But the rising costs may also spur more value-based programs and partnerships with insurers, ambulatory care and telemedicine providers, and other stakeholders, she added.
A $4 billion cut to hospitals' Medicaid disproportionate-share hospital payments is looming, which would rankle hospitals since DSH funds cover about 51% of their uncompensated-care costs. The oft-delayed cuts were pushed back again to Dec. 20. If enacted, DSH cuts will dent hospitals' profitability, Holloran said.
Ratings are generally stable because balance sheets are at all-time highs, but operating difficulties will persist, he said.
"This isn't a business anymore where you can implement a cost-saving or revenue-growth strategy and turn away from it—it requires constant work and vigilance," Holloran said. "These financial pressures are not going away anytime soon."