For-Profit Hospitals Improve Treatment of Bad Debt: Lehman

Growing bad debt continues to be the biggest issue facing for-profit hospitals, says a Lehman Brother analyst.

In a recent note to investors, Health Care Facilities Analyst Adam Feinstein said bad debt expense continued to grow during the fourth quarter, but was somewhat better than expected mainly because for-profit hospitals are allocating more towards charity care or discounts to the uninsured. 

The report comes shortly after Lehman Brothers Eleventh Annual Global Health Care Conference, in which the management of for-profit hospitals gave presentations on the health and challenges of their business.

Feinstein said the sector’s total uncompensated care in the fourth quarter of 2007 declined to 17.8 percent of adjusted net revenue, down from 18.4 percent in the third quarter. Uncompensated care includes bad debt, charity care, and discounts to the uninsured. However, it rose 1.2 percent when compared with the fourth quarter a year ago. As expected, the growing uninsured population is the primary reason for the sector’s rising bad debt. 

“Uninsured volume increased at a faster rate than overall volumes, leading to the higher bad debt,” Feinstein said in the report. He added that HCA Corp. and Health Management Associates reported the biggest year over year change in bad debt, with HCA up 3.3 percent and HMA up 3.4 percent.

Feinstein said hospitals recorded less bad debt quarter over quarter because the sector underestimated its bad debt expense in the first quarter of 2007 and needed to catch up in the second and third quarters. By the fourth quarter, they had fewer bad debt charges.  Still, Feinstein said, “we continue to have concerns about higher bad debt expense later in the year.”

Feinstein said the uninsured population has become too big for politicians to ignore and expects state regulators to continue to address the problem. “Politicians will have to do something about it over the next year,” he said.