ACA has not really reduced bad debt for hospitals

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December 8, 2014 by Tony Novak

A new issue on the effectiveness of the Affordable Care Act is beginning to come to light, although only limited information is available at this time. One of the goals of the law was to reduce the amount of unpaid charity care provided by the nation’s hospitals. This early indication is that for the first half of 2014 hospitals did not seen a big drop in this key indicator of the effectiveness of the Affordable Care Act.

Several newspaper articles I read over the weekend reporting on the health care industry are citing a report by Moody’s investor Services on the impact of the Affordable Care Act on bad credit by hospitals. I presume they are referring to a December 2, 2014 report on RegionalCare Hospital Partners, Inc., a network of hospitals operating in multiple states including some states that expanded Medicaid and some states that did not. Since Moody’s credit reports are only available to purchasers, I have not read the report.

Some of the affected hospitals are in western PA where Medicaid expansion has not yet been implemented. The issue was covered by the Pittsburg Tribune that refers to a statistic that since the implementation of the Affordable Care Act, bad debt for the hospitals has dropped by only 5.6%.

An excerpt from coverage:

“Moody’s Investors Service, which this week published a report on the financial benefits to hospitals from the health reform law. While the data are limited, Moody’s analyst Lisa Goldstein said, there’s a noticeable decline in bad debt in states that have expanded Medicaid. In states that added to their Medicaid rolls, median bad debt dropped 5.6 percent through June 2014, compared with a 6.8 percent increase in states that opted out of the expansion, Moody’s found.”

Granted, some payment is better than no payment at all. But if this trend proves true across the nation’s entire hospital system then it indicates another significant shortfall for the Affordable Care Act. One of the primary motivations of the new law was to prevent the financial collapse of our nation’s hospital system due to large amounts of charity care. It was presumed that by enrolling low-income patients in free health insurance the amount of bad debt would drop sharply. A reduction in unpaid care of only 6% simply won’t solve the problem.

Earlier this year we read reports of how hospitals had become efficient at enrolling uninsured patients into Obamacare coverage just before scheduling major care. This insurance enrollment effort was in full practice by hospitals long before roll-out of exchange-based coverage in 2014. Pennsylvania hospitals were especially active in the early ACA enrollment effort. The medical claims under the Affordable Care Act’s PCIP insurance plan were phenomenally high (I recall a report of an average of about $35,000 per patient claim in the first year of a PCIP policy in 2013). Yet this enrollment effort intended to shift medical costs from charity care to the federal government apparently hasn’t really helped hospitals much.

Separately, hospitals have also increased their debt collection efforts using commercial debt collection agencies this year. It is unclear whether the 6% drop in bad debt is partially attributable to the independent efforts of these debt collection agencies outside of and unrelated to the Affordable Care Act. Yet it appears that so far the results may be minimal; neither the ACA nor commercial collection agencies have yet been able to control the problem of unpaid care provided by hospitals.

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