Weak Economy Hasn?t Yet Added to Hospital Bad Debt Woes: Fitch Report

The economy had no significant impact on the for-profit hospital industry’s second quarter bad debt expense, despite predictions that job losses, higher health insurance premiums, co-pays and deductibles would lead to more unpaid medical bills.

Fitch Ratings’ recent quarterly diagnosis of for-profit hospitals said that both the industry’s bad debt expense and uncompensated care — which includes bad debt plus charity care and discounts to the uninsured — declined slightly during the second quarter 2008.  According to the report, the industry’s adjusted bad debt expense as a percentage of revenues was 17.7 percent during the period, compared with 18.2 percent for the year ago period.

The decline reflects fewer or slower growing uninsured admissions at most of the hospitals, Fitch said. 

“Another encouraging sign is the fact that collections appear to be stable or improving for most providers,” according to the report from Health Care Facilities analysts Lauren Coste , Robert Kirby and Kazuaki Mita. The analysts said the one exception was HCA, which again reported a large charge to bad debt expense based on a look-back analysis of accounts receivable collectability. (“Privately Held HCA Doing a Better Job of Stabilizing Bad Debt Expense: Analyst," Aug. 4).

“The impact of the economy during the second quarter was small,” the analysts wrote. “In fact, economic weakness can have a counter-cyclical effect in the short term as individuals increase their use of health care services.”

Fitch said the weak economy hasn’t taken a toll yet because people insured by Consolidated Omnibus Budget Reconciliation Act (COBRA) often increase their use of health care services before coverage expires. Additionally, individuals tend to suffer more from stress during tough economic times, which can lead to physical and mental health problems that require acute or behavioral admissions. Fitch added that the unemployment rate is the most significant economic indicator of how hospitals will perform.

“It still is relatively low compared with past economic slowdowns,” Fitch said.