Bad debt weighs on hospitals

When Jack Sutherland saw a Rhode Island Foundation report that pegged the number of Rhode Islanders who will go without health insurance at some point this year at about 187,000, he worried. Sutherland is the chief financial officer for Care New England, a hospital system that runs three hospitals and spends tens of millions of dollars each year caring for the uninsured, a cost that threatens the financial well-being of hospitals, he said.
The cost of treating the uninsured is a drag on hospitals across the state, as well as around the country. But Sutherland worries that a rush to provide health insurance to everyone could miss a key aspect: providing the right coverage.
“My frustration with all of this health care analysis is no one is stepping back and taking a comprehensive look,” Sutherland said.
Sure, providing insurance to everyone appears great on the surface. But linking people with policies that have high deductibles, big copays and limited coverage provides headaches to hospitals and simply shifts the problem, Sutherland argues. Unlike virtually every other industry, hospitals must provide most of their services and then ask for payment. Many patients pull out an insurance card but also owe a copay or a piece of their deductible. The hospital will bill the patient with no guarantee it will ever receive its money.
In an era of high employment and the rise of plans with high deductibles and big copays, many patients are simply not paying. Sutherland said Care New England accumulated $29.9 million in bad, or uncollectible, debt charges in fiscal year 2009. That marked a 14.5 percent jump from $26.1 million in fiscal 2007. Sutherland said insured patients skipping out on their payments are partly to blame for the increase.
“It’s trying to get blood out of a stone,” Sutherland said of hospitals’ efforts to get some patients to pay their bills.
Lifespan, which operates five hospitals, including Rhode Island Hospital, did not break out its bad debt in its annual report, and executives there declined to comment for this story, referring questions to the Hospital Association of Rhode Island. Edward Quinlan, president of the association, said Rhode Island hospitals are seeing bad debt as one of the fastest-growing expenses on their balance sheets. The problem, he said, is being compounded by the state’s high employment and a pattern of employers opting for less expensive plans that leave their employees with more out-of-pocket expenses.
“We are essentially at the receiving end of those trends,” Quinlan said.
Data provided by the R.I. Office of the Health Insurance Commissioner says that in 2009 about 79,000 Rhode Islanders, or 12 percent of the commercial health insurance market, had high-deducible plans. That represented an increase of 13 percent from 2007 and compares with the national increase of greater than 26 percent.
A summary provided with the data cautions against citing high-deducible plans as the significant driver for bad debt because of the relatively low penetration rate of such plans in the state.
That provides little solace to Sutherland and Quinlan, who fear a continued sullen economy will leave residents unable to pay their deductibles and employers opting for less-expensive, high-deducible plans. Or worse, even more people could end up with no insurance at all.
The Rhode Island Foundation report estimated that $604 million will be spent this year on caring for uninsured Rhode Islanders, with $104.1 million coming from the pockets of patients. Hospitals will cover an estimated $117.5 million, which breaks down to $62 million in charity care and $55.5 million in bad debt.
The report said that money from the public sector was expected to cover about $59.8 million of hospitals’ $117.5 million in uncompensated-care bills. The remainder will come directly from hospitals or other private sources such as charitable foundations. Hospitals will also ask health insurance companies to pay more for services to make up for the shortfall of caring for the uninsured.
“When we go in to negotiate hospital contracts, one of the top five agenda items is the hospital’s bad debt,” said Dorothy Coleman, chief financial officer for Blue Cross & Blue Shield of Rhode Island.
That puts pressure on insurance companies to raise rates, and three carriers in Rhode Island recently did. In March, Health Insurance Commissioner Christopher Koller approved a roughly 10 percent increase in premiums for Blue Cross subscribers on employer-sponsored plans, about 6 percent for UnitedHealthcare of New England subscribers and 9.3 percent for Tufts Health Plan subscribers. Earlier this year Koller approved higher rates, averaging 6.1 percent, for people who purchase their plans directly through Blue Cross.
Meanwhile, politicians have talked about shifting money now directed at hospitals toward supporting an effort to enroll more people in insurance plans. Sutherland said he worries that ultimately hospitals will lose money for uncompensated care and insurance companies will pay low rates that do not equal the previous government support.
And even Coleman, who works at the state’s largest insurer, said throwing a blanket insurance policy over people will solve little.
And there’s also another problem with providing health insurance to everyone: defining what that means. Koller said if everyone is going to be compelled to carry insurance, someone will need to define a minimum insurance policy. Koller said that would lead to discussions about what hospitals would be paid for and how much, as well as gut-wrenching discussions about what medical services must be covered.
“The question of the uninsured is directly related to what we can afford. And it’s directly related to the more moral or policy question of what should your basic health insurance cover?” Koller said. •