Should We Bail Out Hospitals for Their Bad Debt?

previous blog entry tried to shed some light on the phenomenon of hospital charges that are out of control, such as $500 for a single stitch.

Well, the hospitals have their challenges, too. They increasingly have to worry about collecting money directly from patients, instead of insurers, according to recent articles.

However, it is hardly new. Back in 2009, an article appeared under the headline “Hospitals Forced to Become Bill Collectors”. The article lamented the rise of high-deductible health insurance, which means that a higher proportion of costs are paid directly by patients.

Well, the self-pay patient is here to stay, and hospitals still struggle to get his money. The way hospitals speak about this issue, you would think no-one else has ever had to figure out how to manage the risk of not getting paid for services rendered. The idea of informing the patient how much he owes before he shows up for a scheduled surgery, and discussing a payment plan if he cannot afford his entire share upfront, are still viewed as mysterious and odd requirements by most hospital administrators.

In a 2011 survey, seven out of ten hospitals reported that they collected less than one third of fees due from patients at the time of service. To say that many hospital CFOs are sweating over lengthening accounts-receivable ledgers would be an understatement.

This should not have to be a public-policy issue. But it is for one Congressman I heard from. Scowling, he passed on a report from a large hospital system in his district claiming that deductibles are so high that one third of its losses due to uncompensated care are from insured patients!

There is only one reason (that I can think of) for a hospital lobbyist to bring this complaint to a politician: To ask for taxpayers to backstop these losses. There is precedent: Until 1997, Medicare compensated hospitals for 100 percent of Medicare patients’ unpaid hospitals bills (below the deductible). It dropped to 70 percent until this year, when it went down to 65 percent. Needless to say, the American Hospital Association lobbies against this trend. The idea that they would come anywhere near suggesting a similar bailout for privately insured patients’ unpaid bills is remarkable.

In fact, hospitals’ struggle to get payments from patients, which are legally due, puts them in the same boat as millions of others in our society, from free-lance writers to general contractors, to anyone who sells anything on credit. They will have to develop the same skills in customer service as have providers in other sectors.

More importantly, the hospitals’ pain is necessary to bring about price transparency, which is very important in a consumer-driven health system. If hospitals are unable to tell patients what they owe before a scheduled service, they are going to continue to struggle to get paid.

Politicians must not interfere with this painful change, or price transparency will never come to health care.

Comments (14)

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  1. Bob Hertz says:

    John I share your goal of price transparency, but I would distinguish between hospital urgent care and hospital scheduled care.

    Discussing fees before scheduled surgery or scheduled diagnostic tests is absolutely appropriate.

    But quoting fees and actually collecting fees before urgent care seems rather monstrous to me. It seems shall we say medieval and barbaric.

    From many earlier posts, I sense that you have spent time in a place like Parkland Memorial in Dallas. Do you really want such an institution to shake down ER patients for their deductible?

    Most of us would be appalled if a fire department held back the hoses and firemen until payment arrangements were made. Nearly all of us would pay our property taxes so this did not have to happen.

    This is not an easy thing to craft when so many hospital admissions come from ER admissions. But it is worth the effort.

    Hospitals do need to get paid for what they do. This has been a blind spot in federal health policy since the EMTALA laws of 1986.

    But I think your solution has too broad a brush, at least on my first reading.

    • Dr. Mike says:

      It would seem appropriate to me that, after the federally mandated screening exam, treatment for non-urgent ER vists be withheld until the co-pay and deductible are collected.
      “You have a cold. There are some medications that can make you feel better and I would be happy to write a prescription after you pay your deductible.”

  2. steve says:

    Every surgicenter has this figured out. You don’t get care if you can’t pay. However, they do, mostly, fully elective care. The hospital is faced with the problem of having an urgent or semi-elective procedure become an emergency if they delay. Then, their losses will be even higher. Other businesses dont have to figure this out.


  3. John R. Graham says:

    The data agree with “steve”: Uncompensated ER spending is only about 1.7% of health spending [J. Hadley, et al, “Covering the Uninsured in 2008: Current Costs, Sources of Payment, and Incremental Costs”, Health Affairs 27, 5 (September 2008): w399-w415].

    Although unstated, I was really writing about scheduled surgery, which is what the sources are discussing. Nevertheless, I can’t fully agree with the ER issue. There’s a boatload of evidence that ERs are full of people who are not in need of emergent care.
    Rather they are there because they can’t find a doctor or urgent care clinic open. The latest evidence would be the Oregon Medicaid experiment, which demonstrated that Medicaid enrollment significantly (40%) increased ER visits.

    • steve says:

      Say the hospital does not do that non-emergent gall bladder. The patient returns two weeks later with a septic gall bladder, an emergency. This will require a much longer, costlier hospitalization. What should a hospital do? AFAICT, there is no economic data to guide this kind of decision.

      • John R. Graham says:

        Well, I am not an expert in gall bladders, but your comment suggests that there are economics to guide the decision.

        Nevertheless, if the person is insured, the hospital will therefore earn more money from the unscheduled surgery (especially if in a state where the law allows the out-of-network hospital to charge the insurer out-of-network fees).

        If the person is uninsured, then I go back to the evidence that, in aggregate, the costs of uncompensated care are a small share of health spending. This is not to deny that some hospitals bear a higher share of these costs. But that also means that most hospitals bear a very small share of such costs.

        To the degree that a small number of hospitals are bearing most of the costs of uncompensated care (as in Boston, MA, which was the real reason for Romneycare), any necessary redistribution of income to cover the costs can be addressed at the local, county, or (in extremis) state level, without the perverse consequences of federal intervention.

        Nevertheless, I go back to where I always do when I write about hospitals: They were founded as non-profits by religiously affiliated community leaders specifically with a social purpose. They carried it out (in some cases) for more than a century without federal funds. They saw caring for the poor as their civic duty.

  4. Charlie Quimby says:

    “The idea that they would come anywhere near suggesting a similar bailout for privately insured patients’ unpaid bills is remarkable.” UN-remarkable?

    • John R. Graham says:

      “Un-remarkable” in that they are so aggressive in seeking taxpayer money? You may well be right!

  5. Studebaker says:

    Some of these hospitals with bad debts are public hospitals that cannot pick and choose their customers. A problem identified in the Dallas Morning News several years ago was that people from neighboring counties would seek care at the Dallas County public hospital, Parkland Memorial, and lie about their income and place of residence. Parkland is the indigent care hospitals for the Dallas County Hospital District. Moderate-income Dallas County residents qualify for benefits not available to residents of neighboring counties.

    There is now publically-available databases that can look up a person’s name, identify the addresses they are associated with, and their likely income. The more a hospital screens a patient prior to providing care, the more apt they are to get paid.

  6. Devon Herrick says:

    I worked in hospital accounting years ago. Hospitals are not good at bill collecting. Hospitals tout their charitable mission, something that doesn’t lend itself to strong-arming delinquent accounts. There is also a perception in our society that medical care Is something someone else should pay, whether that somebody is employers, insurers or the government.

    But as a health economist and policy analyst, I believe it goes deeper than mere ability to pay. The fact that hospital charges are not transparent; and it’s next to impossible to discover price ahead of time, makes it harder for hospitals to collect. There is also the sense among consumers that hospital charges are often exorbitant (which they often are).

    The key to collecting on services is to: 1) know your customer and collect the information you need in advance; 2) clearly communicate to your customers what the service is going to cost so their expectations are aligned with your expectations. 3) Make the price fair and affordable. Aspirins that cost $20, admission kits (i.e. a plastic bedpan and a water pitcher, small box of bargain basement tissues, etc.) that cost $250, unnecessary MRIs that cost $3500 are examples of charges that hospitals should not expect patients to view as appropriate.

    I have talked to people who received relatively minor care in the Emergency Room or at a hospital outpatient facility. When the bill came and they discovered services that should have cost hundreds were billed at thousands, they balked at paying their bills.

  7. John R. Graham says:

    Yes, but let’s still go back to that 1.7% of health spending. This is a distraction from the real causes of out of control health spending: Over insurance, especially of higher-income people, through employer-based health care; bloated Medicaid rolls; and undisciplined Medicare spending.

    It is very important that the Dallas County safety-net hospital be funded 100% by the residents of Dallas County and not by the U.S. taxpayer. The status quo makes it too easy for the local community to complain about the phenomenon which you note, instead of solving the problem.

    The incidence of a small number of people crossing the county line might tell the residents of Dallas County that they need to make sure their “indigent care” is used by only the truly indigent.

    The above paragraph sounds harsh, but someone who is cognitively and physically capable of crossing the county line with a fake story/identity is not one of the unfortunate people we are trying to help with indigent care.

    I also agree that anyone claiming free care loses his or her anonymity, and can be subject to whichever reasonable techniques are available to identify him and his income.

    Nevertheless, I think that such identification will only confirm that almost all the cross-county travelers are also quite poor. I doubt many high-income people are executing this type of maneuver.

  8. Bob Hertz says:

    I would like to see health courts (or what Australia calls Complaint Courts), where outrageous hospital charges can be contested and in many cases reduced by law.

    As Uwe Reinhardt has pointed out, hospital billing outside of Medicare is a wild west or what you might call a bazaar approach. The seller starts high and expects to be whittled down.

    Most of the rest of American commerce is not like that, thank goodness. The fixed prices that prevail in a Walmart or a grocery chain or a Perkins restaurant are a very nice feature of American life.