Affordable Care Act – Impact on Bad Debt and Charity Care Revealed

U.S. Hospital Bad Debt and Charity Expenses Fall on Nominal Increases in Net Patient Revenue

Bad Debt Expense Twice as High in Non-Medicaid Expansion States

Total Charity Care Falls by 26% from 2014

Franklin Trust Ratings Analysis: Reveals a significant decrease in year-over-year Bad Debt Expense and Charity Care in U.S. hospitals, and identifies stark differences between Medicaid and non-Medicaid expansion states. Analysis is based upon the latest complete 2015 hospital filings representing 4,015 institutions.

Boston, October 4, 2016 – U.S. hospital bad debt and charity care expenses; those amounts that are returned as a community benefit in the form of uncompensated care, are falling across the country. The overall median hospital reports a 12% reduction in bad debt expense and a 26% reduction in charity care. Bad Debt is the amount of care provided which ends up as unpaid–typically by insured patients. Charity Care is the amount of care that a hospital provides without compensation–typically to the indigent and poor. The declining values increase a hospital’s ability to meet its financial obligations, especially in light of nominal 2.32% year-over-year increases in net patient revenue per adjusted discharge, and negative Operating Profit margins of -0.125%.

For-profit rural hospitals reduced their bad debt expense the least amount (-1.6%). Not-for-profit rural hospitals reduced their bad debt expense the greatest amount (-14.7%).

Other reported findings include:

• Total Bad Debt Expense has fallen from $9.1 to $8.0 million for the median hospital,
• Total Charity Care Expense has fallen from $6.2 to $4.6 million for the median hospital,
• Rural, not-for-profit hospital bad debt and charity care declined (-14.7%) and (-4%) respectively,
• Urban, not-for-profit hospital bad debt and charity care declined (-11%) and (-27%) respectively,
• For-profit hospital bad debt and charity care declined (-12%) and (-30%) respectively,
• Increases in bad debt expense were reported by the for-profit, 400+ bed hospital segment (+ 5.1%),
• Government hospital bad debt and charity care declined (-8%) and (-8%) respectively.

Medicaid Expansion State Findings:

• Expansion states reported a 42% lower bad debt expense of $545.00 per adjusted discharge than non-expansion states where bad debt is $949. Per adjusted discharge,

• Expansion states reported a (-19%) year-over-year decline in median bad debt expense compared to a (-3.3%) decline for non-expansion states,

• Expansion and non-expansion states report similar Total Charity Care expense of $293.00 per adjusted discharge, a (-26%) reduction over 2014.

State Findings:

• FL, DE, LA, VT, DC, each increased charity care by +50% or more,
• RI, MI, RI, KY, MD, WV, AR, OR, AK each decreased charity care by -50% or more.

Commenting on the numbers, John R. Morrow, Managing Director of Franklin Trust Ratings stated, “The industry is seeing two factors; first the impact of tighter control on revenue cycle and pre-collection activities from patients with high-deductible health plans. Second is the impact of a larger base of insured population resulting from Medicaid expansion and the insurance mandates of the Affordable Care Act.  Both factors will help hospitals meet their financial obligations during a time of razor thin operating margins and limited growth in net hospital revenues.”

The data were compiled from the latest annual filings of Hospital Medicare Cost Reports with the federal government covering fiscal years 2014 and 2015. The latest data was obtained through July 27, 2016 with a majority of hospitals now reporting for FY 2015. Data represent 4,015 general service community hospitals larger than 25 beds. All values are medians.

About Franklin Trust Ratings, LLC. – The Company provides business intelligence to hospitals and advisors about the comparative financial, operational, and clinical performance of the U.S. hospital industry.   www.FranklinTrustRatings.com