• Patients sharing high costs often lack ability to pay
  • `It feels like a sucker punch,' at a rural Texas hospital

A type of pain that hospitals thought they had relieved has come back with a vengeance: it’s called bad debt.

Hospitals have long struggled to collect bills when patients aren’t covered by insurance -- creating delinquent accounts. The Affordable Care Act was supposed to relieve some of that strain by helping pay for coverage for millions of Americans and expanding Medicaid in some states to cover the poor.

Yet while millions of people have gained coverage since Obamacare became law in 2010, there’s also been an increase in insurance that comes with high deductibles and cost-sharing. Under those plans, the first few thousand dollars of annual medical expenses come out of patients’ wallets. That’s money that hospitals like Childress Regional Medical Center in the Texas Panhandle region are unlikely to collect.

“It feels like a sucker punch,” said John Henderson, the nonprofit hospital’s chief executive. “When someone has a really high deductible, effectively they’re still uninsured, and most people in Childress don’t have $5,000 lying around to pay their bills.”

The rate of uninsurance in the U.S. has fallen to 9.1 percent from 15.7 percent in 2009. Yet in the first nine months of 2015, about 36 percent of the U.S. insured were covered by high-deductible or consumer-directed health plans that can require considerable out-of-pocket payments, compared with about 25 percent in 2010, according to a CDC survey.

For-Profit Hospitals

Hospitals are feeling the pressure from those patients. Community Health Systems Inc. operates 195 hospitals in 29 states and is the U.S.’s second-biggest for-profit U.S. hospital chain. This month, it revised its fourth-quarter 2015 provision for bad debt up by $169 million -- and said that 40 percent, or about $68 million of that amount, was from patients being unable to pay deductibles and co-payments. Patient bankruptcies also contributed, the company said. A Community Health spokeswoman didn’t respond to requests for comment.

“I’m surprised it’s not bigger,” Sheryl Skolnick, an analyst with Mizuho Securities USA who rates the stock underperform, said of Community’s bad-debt figure. “They need to fill the beds and collect the cash.”

HCA Holdings Inc., the biggest U.S. hospital company, also reported increasing rates of bad debt in the second and third quarters of 2015, although the chain attributed the trend to dropped insurance coverage, rather than unpaid bills from insured patients. Another major chain, Tenet Healthcare Corp., reported fourth-quarter results Monday. Stocks of all three companies have struggled in the last year.

While higher out-of-pocket charges can lower what insurance costs up front, it means more costs for patients on the back end. Under individual Obamacare mid-level “silver” plans, the annual deductible was $2,556, and under less expensive, low-level “bronze” plans it was $5,328 in 2015, according to the Kaiser Family Foundation.

Outside of Obamacare, deductibles are becoming more common, as well. Last year, 81 percent of coverage people got through work came with a deductible, up from 70 percent in 2010, according to Kaiser. The average deductible in a high-deductible, individual plan gained through work was $2,099 last year.

Financial Threshold

Patients are unlikely to pay medical bills that are greater than 5 percent of household income, according to the Advisory Board, a consulting firm to hospitals. Median household income in the U.S. is at about $53,000, suggesting that when out-of-pocket charges exceed $2,600 hospitals can forget about collecting, said Spencer Perlman, an analyst with Height Securities in Washington.

“It’s a major issue,” said Chip Kahn, president of the Federation of American Hospitals, an industry group of for-profit chains. Patients expect to get care when they show up at the emergency room -- and they do -- yet consumers still need education in how to control their medical costs, Kahn said. Member companies have discussed solutions, including pushing for insurers to collect the payments, he said.

Focusing on deductibles alone gives a misleading picture of patients’ total out-of-pocket costs, and the share of health spending that consumers paid out-of-pocket reached its lowest level on record in 2014 at 10.9 percent, the U.S. Health and Human Services Department said in an e-mail. The agency is working on the issue and trying to educate consumers about how much to expect to pay for plans that provide needed services, the agency said.

Acquisition Risk

Community Health’s unpaid bills from patients may add to burdens the company has taken on to do deals, especially following its acquisition of Health Management Associates Inc. for about $3.9 billion in 2014, Mizuho’s Skolnick said.

Community’s net-debt-to-Ebitda ratio, a measure of how much the company owes from corporate borrowings compared to its cash flow, was 6.7 in the fourth quarter, more than three times the ratio on the Standard & Poor’s 500 Index, or 2.1. Ebitda stands for earnings before interest, taxes, depreciation and amortization.

Rural hospitals have been hit particularly hard. Minnesota has long had high rates of care coverage, and many employers have switched to high deductible offerings, according to Joe Schindler, vice president of finance for the Minnesota Hospital Association. Last year, bad debt rose by 20 percent to $425 million at the association’s 140 member hospitals.

“We have 39 hospitals that have negative margins and the majority of them are rural,” he said in a telephone interview. “They have less of a financial cushion to absorb the losses of bad debt.”