While hospital charity care payments declined in Ohio after the first year the Affordable Care Act (ACA) was implemented, bad debt expenses increased, a new report from the Ohio Hospital Association (OHA) found.

Ohio hospitals spent $1.03 billion in charity care in 2013, while reporting $1.04 billion in bad debt. In 2014, hospitals in that state saw a decrease in charity care to $809 million, but bad debt expenses increased to $1.23 billion. The report attributed the $190 million increase in bad debt to more patients selecting high deductible insurance plans.

Those who became eligible for coverage weren’t insured in the same way others were before them, said Charles Cataline, vice president of health economics and policy for the OHA.

“Many patients signed up with high deductibles and high co-payments and were not eligible for Medicaid because they made more than 138 percent of the federal poverty guideline,” Cataline said in an interview. “They were working, but didn’t have insurance with their previous jobs or the extra cash to cover large outlays for medical events.”

As a result, those losses went to bad debt rather than charity care, Cataline said.

“Much of this comes down to correctly identifying what’s a bad debt and what’s charity care,” Cataline said. “Hospitals need to correctly apportion what is really bad debt and be sure to account for things correctly.”

Jane Berkebile, system vice president, revenue cycle management for Columbus, Ohio-based OhioHealth, said the system has seen its percentage of bad debt decline in the years since the ACA took effect. “The primary driver has been expanded Medicaid in our state,” Berkebile said in an interview. “That has actually helped us reduce charity care and bad debt.”

Berkebile said that OhioHealth has a very generous, expanded Medicaid eligibility program that uses external vendors to assist in qualifying patients for Medicaid.

“It helps our patients and gets our bills paid,” Berkebile said.

The system’s internal patient collections department stresses patient-friendly billing and many options for paying medical bills.

“We work with our patients to find a reimbursement plan that best suits their needs,” Berkebile said.

Others Affected

Healthcare financial experts have been predicting increases in hospital bad debt. An August 2016 HFMA survey of hospital financial executives found that the median hospital bad debt comprised approximately 60 percent of uncompensated care in U.S. hospitals and health systems.

The HFMA survey indicated that organizations falling in the 25th percentile had approximately 39 percent of their uncompensated care as bad debt, while those in the 75th percentile reported that 81 percent of their uncompensated care was classified as bad debt.

Two recent reports from credit rating firm Moody’s Investors Service also found conflicting predictions of hospital bad debt by hospital ownership category. A July 2016 report on U.S. not-for-profit and public hospitals found recent annual declines in bad debt have slowed considerably. Bad debt in Medicaid expansion states continued to decline, although at lower rates than in recent years, falling nearly 15 percent in Medicaid expansion states among not-for-profit hospitals. But in non-Medicaid expansion states, bad debt has stopped declining and even begun to grow again.

An August 2016 Moody’s report forecast that U.S. for-profit hospitals would continue to struggle with increased bad debt expenses.

“We expect an uptick in bad debt expense as patients continue to become responsible for an increasing portion of their healthcare costs,” the Moody’s authors wrote.

Michael Topchik, national leader, Chartis Center for Rural Health, iVantage Health Analytics, said rural hospitals already average zero profit margins and have been hard hit by federal policy decisions, like the budget sequestration that has imposed 2 percent Medicare reimbursement cuts, and ACA-related insurance changes. And since many of the state exchange plans have offered high deductible plans, commercial insurers have followed suit.

“The combination of these factors is causing an escalating rate of rural hospital closures,” Topchik said in an interview.

Douglas Wolfe, a Miami attorney, said the plans on the exchanges with the lowest premiums had the highest out-of-pocket expenses.

“What many plans did to keep premiums down was to have the baseline out-of-pocket not kick in until patients hit the threshold,” Wolfe said in an interview. “We saw a migration to these plans. Now many people are showing up at the ER. Now, with insurance they have these huge deductibles and greater patient responsibility.”

Other Options

Wolfe said hospitals are employing different strategies to help patients grapple with these costs.

“Many plans have premium and cost-sharing subsidies,” Wolfe said. “If hospitals have navigators on site, they can help patients enroll for those subsidies.” Also hospitals are turning to finance firms that offer extended loan terms.

In some cases, hospitals are qualifying patients with high-deductibles as charity care patients.

“There’s an inconsistency, because typically, if you have insurance, that disqualifies you for charity care,” Wolfe said. “But if hospitals can’t find a way to minimize or cover those high costs, it comes as bad debt and they have to eat it.”

Abby Birch, vice president of client development for Advanced Patient Advocacy, said her organization staff interviews patients about work status, family size, and insurance coverage to educate them about payment options.

“We help them to navigate the choices and connect them to coverage options,” Birch said in an interview. “Those can include Medicaid, assistance for crime victims, Indian Health Services, and other potential coverage sources. The way we reduce bad debt is to get a portion of the 45 to 50 percent of self-pay that the uninsured or underinsured must pay for the hospital bill.”

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