Philadelphia Business Journal, April 30, 2004
Bad debt afflicting hospital firms by John George
Hospital management companies are increasingly spending their time trying to collect unpaid hospital bills and the bad debt is hurting their bottom line.
Steve Filton, the chief financial officer of King of Prussia-based Universal Health Services, said in recent months the company's hospitals have experienced more patients coming into its hospitals who are employed, but don't have health coverage -- either because their employer stopped offering the benefit or the patient opted out of coverage because the employee's share of the cost was too expensive.
"The issue we are spending time on is making sure we are collecting every dollar and penny we can from the patients who come through our doors and [making sure] we're not doing anything to encourage patients who need not be in the hospital to come there," Filton said, during a conference call with investment analysts. "Bad debt as an issue is likely to persist through the rest of this year."
UHS, the country's third-largest investor-owned hospital management company, last week reported first-quarter results that showed its net income was down 12.5 percent to $46.2 million, as compared to $52.8 million for the same period in 2003.
Officials at UHS cited unpaid hospital bills and a drop in overall admissions as the primary reasons for the decline.
"The last few quarters have been challenging as the overall economic sluggishness has kept volumes low and bad debt high," said UHS Chairman and CEO Alan Miller. "All providers have been impacted and competition has been intensified."
In its first quarter report, UHS recorded a $87.2 million charge as a provision for doubtful accounts. During the first quarter of last year, the provision was $65.2 million.
UHS is not the only hospital management company experiencing difficulties collecting unpaid hospital bills.
Analysts blame the rise on the escalating ranks of unemployed workers, along with the growing trend among employers that do provide health coverage to force workers to pick up a larger piece of the tab.
Tenet Healthcare Corp., which operates about 100 hospitals across the country, including six in the Philadelphia region, said Tuesday its first-quarter bad debts were about $294 million.
Trevor Fetter, the California-based company's chairman and CEO, said bad debt expenses remain a significant operating challenge that will "take time to successfully address."
Fetter said Tenet has experienced a surge in the number of uninsured patients treated at the company's hospitals, as well as "increased difficulties" in collecting payments from managed care companies.
Tenet is looking to reduce its uncompensated care with a new program, set to be implemented during the second quarter of this year, that will provide managed care-style discount pricing for uninsured patients at its hospitals.
Uncompensated care is defined as bad debt, the cost of care provided to patients who are able to pay, but who have not demonstrated a willingness to do so, and charity care, which is care provided to patients determined to be unable to afford the cost.
Tenet is the second-largest for-profit hospital management company in the nation, behind Nashville-based HCA Inc., which announced earlier this year that its earnings will be about 9 percent below expectations because of rising bad debt.
HCA, which operates 190 hospitals, increased its provision for bad debt during the first quarter of 2004 to $694 million -- up from $429 million for the same period last year.
UHS was hit with two lawsuits seeking class action status last month. Both allege UHS made misleading statements concerning the company's business condition, including failing to disclose that it had experienced a "pronounced increase" in bad debt.
Both suits were filed on behalf of shareholders who bought or converted UHS common stock between July 21, 2003, and Feb. 27.
Miller said UHS, which operates 92 acute-care and psychiatric-care hospitals, will continue its strategy of acquiring hospitals in key markets and selling facilities that don't meet the company's criteria of being "the dominant facility in rapidly growing markets."
During the first quarter, UHS negotiated deals to buy a 63-bed behavioral-health hospital that's part of the Stonington Institute in Stonington, Conn., and four behavioral-health facilities -- in Georgia, Arkansas, Nevada and Kentucky -- from Keystone Education and Youth Services. The purchase price for the five facilities is about $100 million.
UHS also reached agreements to sell two California hospitals to Catholic Healthcare West and finalized the sale of Doctors' Hospital of Shreveport, La. Combined proceeds from the sales are expected to be about $40 million.
John George can be reached at jgeorge at bizjournals.com.
- - - - - John Lacny http://www.johnlacny.com
People of the US, unite and defeat the Bush regime and all its running dogs!