Healthcare News & Insights

Does your hospital have bad debt? Here’s how to handle it

Although the ultimate goal of any hospital or healthcare organization is to provide exceptional patient care, making a profit is necessary to achieve that goal. With insurance reform, rising healthcare costs and new technologies, your facility’s finances may be facing a range of complications. 

One of those complications may be the onset of bad debt when patients don’t settle their balances after treatment.

A new survey from Sage Growth Partners, a healthcare research firm, asked 100 hospital executives about their revenue cycle and bad debt. Their responses reveal more than a third of hospitals rack up 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, which means most of the money is being written off.

In addition, one in five organizations have no procedures in place to recover bad debt, whether their collections process is in-house or is administered by a third-party vendor.

“Whether it’s through internal processes or external partners, provider organizations should take proactive actions to ensure they get paid as much as possible for the care that was provided,” said Edward Kennedy, CEO of Dorado Systems, which commissioned the survey.

Bad debt causes

One of the main causes of bad debt, at least according to the executives surveyed, is insurance reform. As patient copays and deductibles increase, patients may find it more difficult to pay for every portion of their treatment.

But it’s not just patient delinquency causing bad debt. Other causes include ineffective facility-specific revenue cycle management (RCM) processes, industry-wide RCM complexities and regulations, changes in reimbursement models and high poverty rates.

Small hospitals also tend to have it worse than more extensive health systems as uncompensated care increases.

“The biggest thing is you have to get into the 21st century with technology,” Kennedy said. “If I’m not using technology and not looking at my current processes to figure out how can I change that to deal with the changes in the market, then as a small hospital I’m not going to survive.”

To keep up with constantly evolving technology and other financial challenges, it’s key to take steps to eliminate bad debt so your facility can boost its bottom line.

If it’s not already, your hospital’s billing department should be rechecking patient insurance eligibility regularly to ensure you’re getting the payments you deserve. Also, staff may want to reach out to patients before their bills are due and encourage them to pay before the balance becomes a write-off, offering them flexible options like payment plans.

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