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Cornell Student Articles on Topical Affairs

Financial crisis of the American healthcare system

American hospitals are currently under an enormous amount of strain. Due to insurance restructuring, rising costs, and massive cuts to healthcare, many hospitals are facing record amounts of bad debt.

For those fortunate enough to be unfamiliar with the concept, bad debt refers to debts that are unlikely to be repaid, due to a noted lack of funds. In many of the cases where hospitals are experiencing bad debt, they have no recovery strategy, and the figures owed are quickly spiralling into exorbitant amounts. It’s a dire state of affairs, and it’s uncertain how things will pan out for the American healthcare industry.

The situation within which American hospitals find themselves is down to a particular set of circumstances, exacerbated by more recent policy and budget changes. Perhaps unsurprisingly, the worst hit have been smaller, not-for-profit and/or charity hospitals. When surveyed in May of this year, 59% of hospitals identified health insurance reform as the biggest contributing factor to their bad debt situation. This figure was as high as 68% in small hospitals, which were defined by having 50 beds or fewer.

Contrary to what many believed, patient delinquency was identified as a key contributing factor by just 17% of the hospitals surveyed. Many of the hospitals questioned acknowledged that patients have been paying their bills to their best of their ability, or availing of procedures that are covered by charitable donations. Like the hospitals themselves, many patients and service-users are also feeling the strain under insurance reform, as healthcare becomes evermore inaccessible to vast swathes of the nation.

When speaking about the hospital bad debt crisis, it can’t be overstated just how dire the current situation is. 36% of hospitals surveyed said that their debts exceed $10 million. Of that number, 10% is looking at a bad debt of between $30 and $50 million.

The figures are pretty shocking, and things look set to get worse before they get better. A recent report by the American Hospital Association warns that healthcare funding is expected to be cut by a staggering $218 billion between now and 2028. Of this number, $5 billion is to be used towards bad debt. Which might plaster over the bad debt issue short-term, but fails to put preventative measures in place that could save the healthcare industry from incurring more debt in the future. In fact, the cuts have the potential to worsen the current state of hospitals, and make the accumulation of bad debt more likely.

As if that wasn’t worrying enough, many hospitals simply are not prepared for a crisis of this magnitude. Of the hospitals surveyed, 21% were cited as having no bad debt recovery strategy. As it currently stands, these hospitals have no way of digging themselves out of the holes they find themselves in, and their situation will only worsen if left unaddressed over the next decade. While things certainly seem bleak from the outside, there are options available to hospitals looking to fight their way out of the bad debt crisis.

Many hospitals are turning to third-party vendors, which may or may not include activities like invoice factoring, to help pull themselves up and out of arrears. Of the hospitals surveyed, 36% have opted for third-party assistance. Meanwhile, 25% have devised in-house procedures to recover bad debt. A further 18% are using a combination of both in their efforts to get back on track.

One piece of financial advice that has been stressed alongside the findings of the study is the importance of re-checking patient insurance eligibility. Working with an aim towards curtailing the accumulation of bad debt, re-checking insurance eligibility can make an enormous difference. The study found that as many as one-fifth of hospitals do not re-check eligibility, and of that number 28% are without a bad debt-recovery process. When left without the necessary processes through which they can reclaim their debt, it’s imperative that the hospitals within this 28% make greater strides towards managing their situation internally. While it won’t mitigate their bad debt, it will prevent it from becoming ever more unmanageable.

One of the biggest takeaways from the study has been that hospitals have been too focused on other financial issues, while bad debt has been left to worsen in the background. If things are to improve, it will take an almighty effort from the ground up. Hospitals will need to turn their focus towards their bad debt, and successfully implement recovery strategies – either through third-party vendors, in-house, or a combination of both. Those without procedures currently in place will need to act quickly, to prevent their situation from rapidly worsening.

While the odds appear to be stacked against them, all is not lost for American hospitals yet. Only time will tell if these are the teething problems of insurance reform, or indicative of deeper fissures within the American healthcare system.

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