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Cutting ‘bad debt’ payment to hospitals could save billions

Hospitals aren’t leaning hard enough on Medicare beneficiaries to pay their share of medical costs, according to a recent report. It suggests reducing what the government pays to cover such bad debt, which could pressure hospitals to bill more aggressively.

This approach could save Medicare nearly $36 billion in the next decade, the report estimates.

The federal government spends millions of dollars each year reimbursing local hospitals for uncollected deductibles and coinsurance not paid by Medicare beneficiaries, a practice that private insurance companies do not follow.

The report by the Health and Human Services Office of Inspector General says this encourages hospitals to bill Medicare instead of trying to collect from patients.

But hospital officials say they are aggressive while still losing money on every fully funded Medicare patient they treat, forcing them to shift costs to private payers.

Last year, Medicare reimbursed hospitals 70 percent of the amount they could not collect from patients, called “bad debt.” Recently passed health care reforms reduce rate this to 65 percent. But the report, released in December, suggests slashing it to 25 percent.

HHS estimates that cutting bad debt repayment to 25 percent would save $35.9 billion over 10 years. The Congressional Budget Office estimated the savings for the same proposal at $23.6 billion.

This recommendation was the largest in a package of suggestions by the OIG, compiled in a report titled the “Compendium of Unimplemented Recommendations.” Others include adjusting payments for things such as surgery fees and oxygen tanks to reflect actual costs.

These recommendations come as federal leaders struggle to get Medicare on a path to long-term solvency. Medicare covers roughly 1.7 million Ohioans, or about 16 percent of the state’s population.

Local hospital chain Premier Health Partners – with hospitals including Miami Valley Hospital, Good Samaritan Hospital Dayton, Atrium Medical Center and Upper Valley Medical Center – estimated its Medicare bad debt at $2.7 million in 2011.

“If they eliminated paying for it, that’s what we would start to lose on an annual basis,” said Mark Shaw, system vice president in charge of managed care.

Kettering Health Network – with hospitals including Kettering Medical Center, Grandview Medical Center, Fort Hamilton Hospital and Greene Memorial Hospital – estimated its Medicare bad debt at $1.5 million in 2011.

“(The OIG recommendation) appears to place a significant increased burden on providers and facilities that perform needed medical services to Medicare patients,” said network spokeswoman Elizabeth Long. “Although well-intentioned, it may hurt the very providers that are serving the medical needs of the Medicare population.”

Springfield Regional Medical Center’s Medicare bad debt is about $400,000 to $500,000 annually, according to hospital officials.

Statewide in 2010, Ohio hospitals received more than $315 million in Medicare assistance for uncompensated care of Medicare beneficiaries, but Ohio hospitals still had a $663 million Medicare loss, according to the Ohio Hospital Association. This loss will only increase as health reforms further reduce Medicare payments.

Local hospitals get between a third and a half of their revenues from Medicare.

The OIG report says the recommendation “would prevent the wasteful Medicare spending that occurs when hospitals fail to make a reasonable effort to collect unpaid deductibles and coinsurance from Medicare beneficiaries who can afford to pay or to collect from other sources.”

It says previous reports have found hospitals’ “path of least resistance” is to bill Medicare versus trying to collect from patients.

Hospital officials say they try just as hard to collect from Medicare patients as they do from private payers, all the way up to taking them to collection, as the law requires.

“Many Medicare patients are of an income bracket where they are not able to pay those monies,” said Shaw.

And even if Medicare pays its negotiated amount and the patient or their secondary insurance pays in full, the hospital is only making about 85 percent of its costs, Premier officials said. This is made up by private payers, just as any additional reduction in their Medicare revenue would be.

“Every dollar that we don’t have is going to cause us to have to react somewhere else,” said Thomas Duncan, Premier Health Partners chief financial officer.

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