By Michael Wong, M.D.
Hospitals in the United States are drowning in debt.
We previously highlighted the alarming increase in medical debt and how it has affected patients. Rightfully so, the spotlight has been on the struggle of the American people. But no player is left unaffected in this situation. As Americans are unable to pay their medical bill, the amount of uncompensated care from hospitals continues to rise. Uncompensated care is a measure of hospital care provided for which no payment was received.
Since 2000, hospitals nationwide have provided more than $660 billion in uncompensated care to their patients. And while most Americans don’t plan to throw a pity party for hospitals, their presence is important. Hospital bankruptcies are not uncommon, with 30 hospitals declaring bankruptcy in 2019. Their absence may spell a drop in accessible care to the local community it serves.
And as hospitals were treading water, a black swan appeared. The introduction of Covid-19 would leave a devastating death toll, pushing healthcare workers to the brink, and strain an already faltering healthcare system. With no current end in sight, a recent survey demonstrated that three-quarter of hospital executives are worried about their financial viability. To say the pandemic was a catalyst to the current hospital financial woes isn’t inaccurate. However, catalysts work on an existing substrate - an existing problem. Let’s explore just how precarious the situation was for hospitals before the emergence of the coronavirus pandemic.
Many hospitals were saddled with debt long before the pandemic. That is fairly obvious as rising medical cost and debt were present way before the pandemic as well. However, beyond the straightforward variable of rising medical cost is the proliferation of high-deductible health care plans.
The idea that large medical bills is an exclusive problem to uninsured Americans is a fatal fallacy. Medical debt is indiscriminate. Americans on Medicare or with private insurance are often affected. As deductibles rise, so does the responsibility of the patient to cover costs.
Patient balances after insurance (PBAI) have soared. A TransUnion Healthcare analysis showed that the portion of the bill that patients have to pay has skyrocketed over 50% from 2012 to 2017. In lockstep, uncompensated care rises with this figure.
“[Patients] are horrible payers compared to insurance companies. They cost twice as much to collect from and they take three times as long to pay. That's an administrative burden for the hospital-cost to collect - it's significantly higher to collect from a patient than from a insurer," states Jonathan Wiik, principal for healthcare strategy at TransUnion.
A survey from Sage Growth Partners, a healthcare research firm, revealed that >33% of hospitals generate at least $10 million in bad debt each year, and half don’t expect to recover more than 10% of it from payors or self-pay patients. Only 9% of hospitals believe they can recover more than 20% of their bad debt. What happens to the rest of it? Well it gets written off as a loss.
The introduction of the Coronavirus pandemic uprooted virtually every aspect of hospital financial and clinical operations. As the dust settled, four main factors put virtually every hospital in a vice. These were:
When you total these four factors together, the American Hospital Association predicts a massive hemorrhage of more than $323 billion in 2020. As a result, at least 47 hospitals in the U.S. have closed or entered bankruptcy in 2020, with likely many more to come as the Coronavirus is projected to last at least until the summer of 2021.
“Hospitals and health systems face multiple challenges in the coming months and years. Their ability to leverage the positive impacts of the pandemic as they work to mitigate its negative impacts will have a significant effect on their long-term health and the health of the communities they serve.” Kaufman Hall stated in the report.