Increasing Bad Debt, Charity Care Slowing Down Hospital Finances

Analysis? |? By Jay Asser, CEO editor for HealthLeaders.

???

The trend and its impact will be worth watching in the coming months, Kaufman Hall analysts say.

KEY TAKEAWAYS

The final Kaufman Hall National Hospital Flash Report for 2024 shows several key indicators of hospital financial health heading in a positive direction. One concern is bad debt and charity per calendar day up 14% for the year compared to 2023, which could be impacted by fewer Medicaid enrollees and more insurer denials.

Hospital financial performance in the past year has been a mixed bag.

?

Though a jump in revenue and manageable expense growth have helped hospital margins stabilize, a rise in bad debt and volume of charity care have kept bottom lines in check, according to Kaufman Hall's latest National Hospital Flash Report.

?

The analysis, which reflects data from more than 1,300 hospitals nationwide through December, revealed that hospitals finished 2024 with a 4.9% median operating margin after a strong close to the year that included a 7.6% figure for the final month. Compared to 2023, the 4.9% median operating margin represented a 9% year-over-year increase.

?

Hospitals, however, experienced swelling bad debt and charity care, likely stemming from the continued Medicaid redetermination process and health insurers bumping up denials, Kaufman Hall analysts stated.

?

Bad debt and charity per calendar day rose 14% year to date in 2024 versus 2023, and 20% compared with 2021. As a percent of gross revenue, those areas increased 7% year-over-year for the full calendar year.

?

"While it’s encouraging to see continued stability in hospitals' financial well-being over the past 12 months, historically slim margins indicate hospitals are not yet in a fully sustainable position," Erik Swanson, senior vice president and data and analytics group leader with Kaufman Hall, said in a statement. "The uptick in bad debt and levels of uncompensated care provided by hospitals will be an indicator to monitor over the next several months. On the workforce front, we continue to see a competitive and tight labor market across the healthcare sector."

?

Reasons for optimism for hospitals going forward include gross operating revenue per calendar day being up 8% in 2024 versus 2023, with inpatient revenue jumping 8% and outpatient revenue increasing 9%.

?

Meanwhile, adjusted discharges per calendar day for the year were 5% higher than in 2023, and observation patient days as a percentage of patient days declined by 13% over that period.

?

Expenses also continue to rise, the report highlighted, but they aren't outpacing inflation on a volume-adjusted basis. Increases for the full year on a calendar day basis were 6% for total expenses, 5% for labor expenses, 7% for non-labor expenses, 9% for supply expenses, 9% for drug expenses, and 8% for purchased service expenses.