21% of Orgs Do Not Have a Hospital Bad Debt Recovery Process

June 20, 2018 - Even though two-thirds of organizations have up to $10 million in hospital bad debt, some still do not have strategies in place to recover the revenue owed to the organization, a new survey from Sage Growth Partners found.

The Baltimore-based healthcare research, strategy, and marketing firm surveyed 100 hospital C-suite executives and finance leaders earlier this year on behalf of Dorado Systems. In the survey, 21 percent of executives said their hospitals do not have an in-house process or a third-party vendor for bad debt recovery.

“Bad debt is an industry-wide issue that has only grown increasingly more challenging in the last five years,” stated Dan D'Orazio, CEO of Sage Growth Partners. “While external factors like insurance reform have compounded the problem, it's important for leaders to talk about this issue strategically with their teams, and to remember that there are steps they can take to mitigate bad debt.”

Hospital bad debt, or the amount not recoverable from a patient after collection efforts are exhausted, is a major challenge for executives and financial leaders, the survey found. One-half of respondents only expect to recover up to 10 percent of their bad debt, and another 41 percent estimate that they can collect up to 20 percent of their organization’s bad debt.

With few hospital executives and finance leaders expecting to recover over 20 percent of their bad debt (9 percent), most hospitals may find that they are losing millions in revenue.

While about two-thirds of hospitals have $10 million or less in bad debt, slightly over one-third (36 percent) reported that their organization’s bad debt exceeds $10 million. Of these hospitals, 20 percent said their hospital has between $10 and $30 million in bad debt, and another 10 percent reported between $30 and $50 million in bad debt.

The unlucky few (6 percent) stated that their hospital incurred over $50 million in unrecoverable revenue from patients.

The majority of hospital executives and finance leaders attributed their lost revenue to insurance reform.

Approximately 59 percent of participants said high patient co-pays, greater deductibles, and other health insurance reforms are the largest drivers of hospital bad debt.

Health insurance reform was especially a problem for small hospitals. Three-quarters of those at hospitals with 50 to 100 beds and 68 percent at hospitals with less than 50 beds blamed insurance reform for their organization’s bad debt.

Just 17 percent of all respondents cited patient delinquency as the driver behind hospital bad debt.

Other reported causes of hospital bad debt included ineffective revenue cycle management processes in the facility (11 percent), industry-wide revenue cycle management complexities and regulations (10 percent), changes in reimbursement models (2 percent), and the high poverty rate (1 percent).

Hospitals may be blaming health insurance reform for their bad debt challenges because the reforms have boosted patient financial responsibility. A recent TransUnion Healthcare analysis found average out-of-pocket costs increased 11 percent in 2017, growing to $1,813 by the end of that year.

The rise in patient financial responsibility is troubling for provider organizations. About 68 percent of patients owing $500 or less in medical bills did not fully pay their patient financial responsibility to hospitals in 2016, a related study showed.

The proportion of patients failing to fully pay their medical bill balances to hospitals also increased from 53 percent in 2015 to 43 percent in 2014, the study revealed.

Despite facing a significant growth in patient financial responsibility and therefore hospital bad debt, some executives and financial leaders said their organizations do not have comprehensive recovery strategies or processes in place.

While one in five organizations does not have any hospital bad debt recovery process, about 18 percent said they also do not re-check patient insurance eligibility.

Hospital bad debt recovery is key to recouping payments owed to the organization and strengthening the revenue cycle. Hospitals are increasingly turning to third-party vendors for help with revenue recovery, the survey found.

Thirty-six percent of executives and finance leaders said their organization partnered with a vendor to implement a bad debt recovery solution.

Another 25 percent reported that their hospital created an in-house process, while 18 percent use a combination.

Regardless of the type of solution, hospitals should ensure their bad debt recovery strategy includes a proactive piece that encourages patients to pay their medical bills before they become write-offs.