Tenet Bucks Bad-Debt Trend at For-Profit Hospitals

Four of the six major for-profit hospitals saw their bad debt expense as a percentage of revenues increase in 2007. According to Fitch Ratings’ recent quarterly diagnosis, the industry’s adjusted bad debt held steady year over year at 18.4 percent of revenues in 2007, compared to 18 percent in 2006.

But the sector’s performance would have been much worse had it not been for a significant decline in Tenet Healthcare Corp.’s bad debt expense.

The Dallas-based hospital operator’s bad debt as a percentage of revenue was 12.7 percent in 2007, the lowest of all for-profit hospital operators, according to the report. In 2006, Tenet’s bad debt expense was 20.3 percent of revenues.

Fitch said Tenet was helped by a $19 million favorable charge to bad debt in the fourth quarter after it completed an 18-month look-back analysis that showed improvement in its self-pay collections rate which was 13 percent, well above the industry’s self-pay collection rate average of 10 percent, Fitch said.

In recent years Tenet has refined its collections policies by centralizing internal collections, pre-registering patients and collecting deposits from self-pay accounts. However, Tenet’s self-pay collection rate also may have been helped by its above industry average levels of charity care and discounts to the uninsured.

“Fitch will watch closely for indications that Tenet’s policies are too aggressive,” it said in the report.

Health Management Associates posted the highest bad debt as a percent of revenues at 23.5 percent among the six for-profit hospital operators in 2007, followed by HCA with 20.5 percent and Universal Health Services with 20.3 percent, Fitch said. LifePoint Hospitals – helped by a decline in self-pay admissions – recorded the sector’s second lowest bad debt expense at 13.6 percent of revenues.

Meanwhile, Community Health Systems (CHS) posted bad debt expense at 19.8 percent of revenues, up from 18.7 percent in 2006. CHS announced in the fourth quarter that changes to its estimates for contractual and bad debt allowances resulted in a $70 million increase in bad debt and $166 million in accounts receivables. CHS, which became the largest publicly traded hospital firm after it bought Triad Hospitals in July, also said it began in the first quarter of 2008 to provide 15 to 20 percent discounts to uninsured patients at the majority of its legacy CHS hospitals.