News & Events

With more patients unable to pay, earnings suffer and so may care
Sunday, November 15, 2003, By Roger Yu - The Dallas Morning News

In recent years, Triad Hospitals Inc. has enjoyed a reputation of being, as one analyst put it, "the Steady Eddie" of the volatile hospital industry. Despite increased scrutiny in reimbursements from Medicare and private insurers and even as patient volume growth turned sluggish, the Plano-based operator of hospitals churned out, quarter after quarter, steadily rising earnings that met or exceeded Wall Street's expectations.

In comparison with its higher-profile competitors, HCA Inc. and Tenet Healthcare Corp., Triad was considered downright staid.

But about a year ago, Triad executives began to sense the emergence of a storm that even its own operational expertise couldn't control. A disturbingly rising number of patients were falling behind on their payments. Many weren't paying at all. And more patients without health insurance were coming into its hospitals' emergency rooms every day.

In mid-October, Triad shocked Wall Street by revealing that it had increased by $50 million its allowance for doubtful accounts - the amount set aside to cover medical bills for patients who don't pay. The provision for these accounts totaled $134.4 million, or nearly 14 percent of its total revenue for the third quarter. Investors reacted swiftly, sending Triad shares down 12 percent that day.

Triad's woes were soon shared by HCA and Tenet, two of the nation's largest publicly traded hospital companies. Both cited the health insurance crisis in reporting lackluster quarterly earnings in recent weeks.

At HCA, based in Nashville, Tenn., the provision for doubtful accounts for the third quarter rose 37 percent to $566 million. At Tenet of Santa Barbara, Calif., the figure more than doubled to $522 million.

The problem isn't limited to for-profit hospital chains. Local nonprofit operators - including Texas Health Resources, Baylor Health Care System and Parkland Memorial Hospital - also face growing concerns over mounting bad debts, executives said.

"This is a crippler for the health care delivery as we look forward," said Doug Hawthorne, president and chief executive of Texas Health Resources, whose hospitals include Harris Methodist Fort Worth Hospital and Presbyterian Hospital of Dallas. "The problem is significant in Texas in that it will continue to have adverse effects on the ability of health care providers to deliver services."

Texas has the highest percentage of uninsured people and has been particularly hard hit.

"If one in four aren't getting care and not paying for them, then it's not difficult to figure out the constraint it's putting on the system," said Darren Whitehurst, vice president of government relations at Texas Health Association. "Hospitals are seeing their bottom lines decline rapidly."

Long-suffering

To be sure, hospitals have always had to deal with uninsured patients in emergency rooms. By law, they have to treat all patients in critical condition until they are stabilized. Hospitals write off those treatments as "charity care," setting aside reserves for that category.

But the impact of the uninsured on hospitals' business has reached unprecedented proportions, as many patients have lost their jobs and therefore their employer-provided health insurance in the sluggish economy.

Nationwide, the number of uninsured individuals rose to 43.6 million last year, from about 41 million in 2001.

Moreover, hospital executives have a new problem.

They're seeing a steep rise in unpaid bills to patients initially thought to have insurance. These bills are eventually classified as bad debts.

"We're seeing a faster increase in the bad debt than charity," Mr. Hawthorne said. "Usually it was split about 50-50. But we're seeing the [bad debt] category rising as we see more responsibility passed on to consumers."

One reason for the growth in unpaid bills by insured patients, experts said, is that more employers are rolling out health plans that are designed to pass on more of the cost to employees.

The plans have higher co-payments or come with co-insurance - the fixed percentage of a bill that patients must pay. A hospitalization with a $4,000 charge, for example, would cost $800 out-of-pocket for someone with 20 percent co-insurance.

"The problem is really the other side - the working poor," said James D. Shelton, chairman and chief executive of Triad. "We have more and more people who are working but don't have insurance coverage. They are people maybe working in hotel, food and guest industries."

Meanwhile, hospitals' revenue sources are being squeezed by cuts in such government programs as Medicaid, Medicare and the Children's Health Insurance Program, or CHIP.

When early signs of financial troubles at hospitals showed up a year ago, many executives chalked them up to fewer people coming down with the flu.

At Triad, Mr. Shelton wasn't so sure. Flu outbreaks - or a lack of them - tend to affect hospitals by region, and the trend he saw was nationwide.

About a third of Triad's facilities are the primary source of hospital care for their regions, so they attract a disproportionate number of uninsured and medically indigent patients.

Setting aside reserves

Triad, which runs 51 hospitals nationally, previously set aside reserves for bad accounts totaling 8 percent to 8.5 percent of revenue. The figure has been steadily rising since last year, Mr. Shelton said.

Texas Health Resources incurred about $165 million - 6.5 percent of revenue - worth of charity care and bad debt in 2002, said Ron Bourland, chief financial officer.

In 2003, the figure is projected to hit about $290 million, or 7.4 percent of revenue.

"Our estimate for next year is another $40 [million] to $45 million," he said.

The situation is particularly acute at the company's Harris Methodist in Fort Worth, which operates a large emergency room. Harris Methodist's bad debt as a percentage of revenue is about 10 percent.

"For 2005 and 2006, the numbers [could] get significant in that it'd impact our ability to reinvest," Mr. Hawthorne said.

Hospitals in Texas are feeling the effects acutely. Nearly 25 percent of Texans are estimated to be without health insurance, making it the most uninsured state in the country.

"The truth of the matter is the rest of the states look down on Texas," said Triad's Mr. Shelton. "It probably affects us more because our biggest market is Texas."

Last year at Parkland in Dallas, about 24 percent of 43,000 admitted patients and 1 million outpatients had no insurance. Many area private hospitals refer uninsured patients to Parkland, leading to North Texas' largest county hospital providing more than $100 million worth of charity care last year.

With cuts in Texas' Medicaid and other revenue sources, Parkland recently had to lay off employees, and experts say its financial situation is facing tough times.

"Parkland Hospital is really stressed right now with decreases in federal funding, Medicaid and no increase in local tax support for this fiscal year," said Dr. Kern Wildenthal, president of the University of Texas Southwestern Medical Center at Dallas, which provides many of Parkland's doctors. "Parkland needs urgent attention. We can't go on another year like this."

Seeking a remedy

Hospitals are using a variety of strategies to deal with payment problems.

Like some of its similar size peers, Presbyterian Hospital of Dallas now employs a two-tiered system for checking in patients at its ER, where about 30 percent of visitors are uninsured. Those deemed to be in critical condition receive care on one track, while patients with moderate conditions are put on another track and charged lower rates, said Mark Merrill, the hospital's president.

Costs from charity care and bad debt totaled about 5.7 percent of revenue in 2000 and has risen to about 6.4 percent this year, Mr. Merrill said. He anticipates it will rise to 6.8 percent next year.

Hospitals are also working with other community and nonprofit organizations to set up clinics to route patients who can't pay.

Presbyterian subsidizes women's health centers where pregnant women without insurance can receive prenatal care. Teaming with Parkland, it also subsidizes low-cost pediatric centers that provide immunization and other checkup services.

Triad's Denton Community Hospital is working to create a new venture, with other shareholders, to create clinics solely for primary care.

Stan Morton, chief executive of Denton Community Hospital, said the need for such clinics is more pressing because many uninsured patients wait until the last minute before coming into the emergency room.

"More are coming in with higher severity of medical issues," he said. The hospital is in talks with other organizations to jointly open and run primary care clinics, Mr. Morton said.

Triad also said it will step up efforts to better identify those who are unable to pay at registration points and either steer them to social services or set up ways for them to eventually pay their medical bills.

It will also consider providing more loans, developing indigent care clinics with other joint venture partners and, if regulations allow, lowering prices for poorer patients. It also has a program to allow some patients to pay over time.

Hospitals also promise to be more aggressive in collecting bills. And nurses at the check-in point will be more insistent in verifying insurance, executives said.

"We're trying to be fair and aggressive," said Mr. Hawthorne. "But you're going to see more efforts to collect upfront."