Over the past five years, we have seen a drop in the number of Americans without health insurance – one of the many effects of the Patient Protection and Affordable Care Act (PPACA) of 2010. The current statistics show that about 10.7% of the non-elderly adult population was uninsured in 2015, this is a large decline from 16.7% in 2013 (the year before the health insurance mandate provisions of PPACA went into effect), and from a high of 18.2% in 2010 (before the passage of PPACA and during the “great recession”) (see Key Facts about the Uninsured Population).
One of the “benefits” of the PPACA for provider organizations is that the reduction in the uninsured population should result in a decrease in uncompensated care (see The Cost Of Uncompensated Care With & Without Health Reform and Impact Of Insurance Expansion On Hospital Uncompensated Care Costs In 2014). Uncompensated care is the total amount of health care services provided to consumers who are either unable or unwilling to pay. The question is, six years after the passage of the PPACA, has uncompensated care decreased in the same way that the uninsured population has decreased?
To explore this topic, we need to consider the two elements of uncompensated care – bad debt and charity care. Bad debt is defined as any bill submitted for payment by a third-party payer or patient which is not paid in full. Charity care is defined as care provided to consumers at no cost with no expectation of payment.
In 2014, hospital uncompensated care costs were about $27.3 billion – $7.4 billion (21%) lower than the $34.7 billion in 2013 (see Expansion Of Insured Americans By PPACA Cut Uncompensated Care Costs By $7.4 Billion In 2014). The study showed that nationwide, bad debt costs are down by $1.9 billion and charity care costs are down by $5.5 billion. These figures are largely tied to Medicaid expansion:
- In Medicaid expansion states, hospital uncompensated care costs were 26% lower, a spending drop of $5 billion. Bad debt costs are down by $1.1 billion and charity care costs are down by $3.9 billion.
- In non-expansion states, hospital uncompensated care costs were 16% lower, a spending drop of $2.4 billion. Bad debt costs are down by $0.8 billion and charity care costs are down by $1.6 billion.
But a related story in Modern Healthcare earlier this month caught my attention – not all hospitals are seeing a decrease in bad debt. The article author, Melanie Evans, examined the bad debt reported by 52 hospitals and health systems and found that the changes in hospital bad debt was uneven between 2013 and 2015 (see The Affordable Care Act Isn’t Wiping Out Unpaid Hospital Bills). The median change over the period was a 5.6% decline in bad debt. But, the range was great – Verity in California saw bad debt drop 57% between 2013 and 2015, while Campbell County Health in Wyoming saw bad debt increase 42% between 2013 and 2015.
The article stated that “some hospital executives at multistate health systems said they anticipated, but have not yet seen, a surge in unpaid bills from patients who bought health plans with high deductibles on ACA exchanges….” However, the drop in bad debt could be an artifact in changes in how it is calculated. Hospitals have typically billed uninsured consumers at rates that are higher than their negotiated rates with health plans. But, under PPACA rules that went into effect last year, hospitals are limited to charging uninsured persons the amounts paid by health plans.
What is going on? Clearly, the data show that the uninsured population is decreasing, and overall, the numbers show that uncompensated care costs are decreasing as well. But my colleague Jamie Stewart, Executive Vice President & Chief Administrative Officer, Grafton Integrated Health Network and OPEN MINDS Advisory Board member, made another important point; he explained, “The reality is that we are shifting the composition of uncompensated care – from more charity care to more bad debt. This shift is a problem of both policy and financial management for provider organizations.”
I see a few big issues for executive teams. First, provider organizations will need better systems to collect patient contributions to their care – the copayments and deductibles in their health plans. Hospitals are trying to collect patient payments in advance as a strategy to limit bad debt.
In addition, provider organization will need to reflect a “normalized” bad debt assumption in their negotiated rates with health plans. The market is still in flux but individual provider organizations will need to develop cost models that reflect the likely bad debt by health plan (see With Decreasing Rates & More Competition, Are Non-Profit Organizations Sustainable?).
Finally, there is the issue of a decrease in the amount of “charity care” provided by tax-exempt provider organizations. As charity care diminishes it is going to cause a continued challenge to the tax-exempt status. With the reduction in the uninsured population, the need for charity care is greatly diminished – and this challenges the public policy rationale to grant tax abeyance to health care organizations. Recent cases have shown a narrowing standard for tax-exempt status – one that does not include bad debt (see Charity Care Is In The Eye Of The Beholder and PPACA & Tax-Exempt Status – More On The Horizon).
For more on how you can prepare your organization for these coming challenges, check out these resources from the OPEN MINDS Industry Library:
- Tips for Improving Collections
- The Collections Conundrum
- Improving Your Back Office Collections: Steps For Better A/R Practices
- Revenue Cycle Management: Improving Collections With Analytics
- The ‘Non-Medicaid’ Medicaid Expansion
- Federal Judge Upholds Health Care Subsidies Under PPACA
- Charity Care Issues In An Era Of Expanded Health Care Coverage
- Charity Care Vs. Community Benefit
- Who Gets Your Charity Dollars?
- An Early Effect Of Medicaid Expansion? A Drop In Charity Care Admissions
- Charity Care Is In The Eye Of The Beholder
The changing financial landscape for provider organizations from pay-for-value to uncompensated care, is sure to get more press in the year ahead – and we’ll bring you the new developments as they happen.