Health care costs have been on the rise for quite some time. As prices have increased so has the level of hospitals’ uncompensated care or the need for health systems to provide treatment that isn’t repaid. Receiving accurate medical payments is an ongoing challenge for many health systems. The combined revenue from patient payments and insurer compensation is the lifeblood of hospitals, but the economic downturn made it increasingly difficult for health systems to obtain collections through patient billing. When health system executives take into account that more patients have high-deductible plans through the Affordable Care Act (ACA) and decreasing Medicare reimbursements, they will see that uncompensated care is going to make a major impact to their organizations’ bottom lines.

A growing problem
According to Becker’s Hospital Review, the latest report from the American Hospital Association (AHA) found uncompensated care accounted for 6.1 percent of total hospital expenses in 2012. At $45.9 billion, uncompensated care cost hospitals big that year. Usually, unpaid care only accounts for between 5 and 6 percent of hospital expenses, Becker’s noted, making the rise to 6.1 percent significant.

The AHA defines uncompensated care as “an overall measure of hospital care provided for which no payment was received from the patient or insurer.” The AHA calculates unpaid care by adding together a hospital’s bad debt charges and charity care charges, then by multiplying that value by the organization’s cost-to-charge ratio or its “ratio of total expenses to gross patient and other operating revenue.” For hospitals, bad debt can drag down its financial stability and impact all levels of the organization. If health systems increasingly absorb patient payments, effectively spending money to employ workers and maintain equipment in relation to unpaid for care, then it will become harder for hospitals to continue financing its operations.

The amount of unpaid care has been steadily increasing for years. In 2011, uncompensated care rose to $41.1 billion, a rise of 5 percent from the previous year, Forbes reported. The AHA estimates that hospitals and health centers have delivered more than $326 billion in unpaid care since 2000 alone. Becker’s reported the AHA began examining uncompensated care costs in 1980.

Hospitals cannot afford to allow uncompensated care costs to continue increasing. For example, the Stamford Advocate, a Connecticut newspaper, reported local health system Yale-New Haven Hospital spent approximately $31.8 million on unpaid care in 2012. Data found Connecticut hospitals alone had $233.6 million that year in uncompensated care – and that number just includes bad debt and charity care, not Medicaid and Medicare. The Stamford Advocate reported Medicaid and Medicare deficiencies were $868.3 million in 2012 for Connecticut hospitals.

With the existing CMS Hospital Value-Based Purchasing (VBP) Program for patient satisfaction is already impacting Medicare reimbursements to hospitals, there is little hospitals can do to boost their Medicaid and Medicare reimbursements. They do, however, have options when it comes to patient payments’ impact on bad debt. According to Bloomberg, hospitals that can tackle their uncompensated care challenge end up improving other aspects of the organization as well, such as patient satisfaction, engagement and even health care costs.

What hospitals can do
Encouraging patients to to pay their medical bills in a timely manner is the No. 1 improvement every health system needs to make. Reducing the number of patients who can’t pay their bills because they don’t actually understand how much they owe is one way for hospitals to boost their patient payment collections.

Providing cost estimations at the point-of-service lets patients stay informed about how much they will be expected to pay, which in turn benefits hospitals in increasing patient payments. Clear, concise patient bills can provide extra benefits as well. All too often patients get confused about how much they must pay when they receive their bills. With patient friendly billing that includes cost estimations, simplified bills and electronic cost presentations, hospitals can remove barriers to paying off medical charges. Transparency and patient-friendly billing help hospitals make that No. 1 improvement by improving patient knowledge about their medical bills, effectively increasing the likelihood that patients will provide compensation in a timely manner without the additional cost of spending the amount to collections.