Q: What percentage is the hospital currently running for unpaid debt from patients who have used our services? What is the dollar amount of uncollectable debt from 2015 from those unable to pay their bills?
A: From Chief Financial Officer Jennifer Munson:
Washington state law requires hospitals to provide free and discounted inpatient and outpatient care; this is what we call charity care or financial assistance. In 1989, the Legislature enacted RCW 70.170.060, which prohibits any Washington hospital from denying access to emergency care based on inability to pay, or adopting admission policies which significantly reduce charity care. The same legislation directs each hospital to develop a charity care policy. The Department of Health (DOH) is responsible for rule-making and monitoring related to charity care, and is required to report to the Legislature and governor on an annual basis. The DOH website has some great information about the amount of charity care provided in Washington state for all hospitals.
Statewide data from 2015 has not yet been released, but 2014 data shows the state average of charity care as a percentage of gross revenue at 1.64%. In 2015, Three Rivers Hospital’s charity care as a percentage of gross revenue was 1.8%.
In 2015, the hospital had gross revenues of $19,750,900. For those who may not understand healthcare reimbursement, let me take a moment for a very basic explanation. Hospitals are not paid for services at cost like other entities. For example, if I take my car to a mechanic because it needs some preventative work (like an oil change), the mechanic will tell me that I need to pay a set amount. I pay the fee and the work is done. A hospital does not get paid the full amount that they bill. Insurance companies have a predetermined negotiated rate that they will pay. In rare cases, a hospital may have a contract that will pay a percent of gross “allowable” charges for a service. Several things deem a service “allowable.” This may include pre-approval by the insurance company. If pre-approved, an approved medical reason or diagnosis would be needed to have the service; and even if the previous items were met, if the doctor didn’t have appropriate documentation and the correct diagnosis on the bill it could still be deemed a non-allowable charge. If the insurance company disallows a charge, the hospital cannot bill the patient and if the insurance company pays the hospital, the negotiated rate is paid and the remainder of the bill that is not a copay or deductible becomes a contractual adjustment. In 2015, contractual adjustments were approximately $6,720,994.44, or about 34% of our total revenues. This does not include any bad debt or financial assistance.
All insurances pay differently. Some companies, like the above example, will pay a percentage of the charges. Some pay based on a pre-determined national fee schedule and others, like government funded programs such as Medicare and Medicaid, pay a per diem rate. A per diem rate is a calculation of what the government says is an allowable cost to charge ratio. Three Rivers Hospital is considered a Critical Access Hospital (CAH), and as such, we are paid a per diem rate from Medicare and Medicaid. In a CAH reimbursement setting, Medicare pays TRH a flat rate per day of $5,072 for an inpatient in the hospital (this is the 2016 estimated reimbursement based on the year-end cost report filed with Medicare; this rate has not yet been approved). The amount of tests, services or supplies that are billed will be paid at this flat rate. For example, if you were at TRH for an orthopedic surgery and the charges were $80,000 and you were in the hospital for three days, we would be paid $15,216 and $64,784 would be unpaid as a contractual. Medicare pays outpatient services at 58% of charges, so for every $1 we bill to Medicare, we are paid $0.058 and $0.42 would be a contractual. Medicaid pays similarly, however, both inpatient and outpatient are paid at a percent of charges. For Medicare and Medicaid, TRH files a cost report that, in simple terms, calculates their portion of allowable costs as compared to charges. The cost report will summarize whether the hospital was over/underpaid for the year and determine a settlement amount. This is a very simple explanation; please be aware that the cost reporting process and resulting reimbursement are far more complex that what I have explained here.
A breakdown of the total patient service revenue for 2015 is as follows:
|HMO/PPO (State Healthy Options Plans)
Total contractual adjustments from insurances as a percent of gross revenues for 2015 averaged 35.5%.
Provisions for bad debt was $829,904. Bad debt is approximately 4.2% of gross patient revenues.
Charity care was $363,876, which is approximately 1.8% of our gross patient revenues.
There are programs available to help uninsured patients, and Three Rivers Hospital does participate in and receive disproportionate share hospital payments from the State of Washington to subsidize services to uninsured patients. In 2015, TRH received approximately $145,000.
In the past, the federal government had a program in place called Section 1011. This program designated funds to each state to help offset the cost of care for undocumented individuals. In Washington, this program ran out of federal funding in 2011. TRH also participated in this program.
As of December 31, 2015, outstanding Accounts Receivable (the amount owed to the hospital) breakdown is as follows:
||% of Total A/R
||Days Revenue in A/R
|Blue Cross (Commercial)
|Commercial (All Other)
While private pay gross revenues account for 7.27% of our total revenues, they account for 47% of our outstanding accounts receivable, or debt owed to the hospital. This is nearly half of our accounts receivable. It is important to note that the private pay amount owed to the hospital also includes the balances that patients owe after their insurance has paid. Many of our accounts have existing payment agreements. TRH also has dedicated staff to assist the community in signing up for insurances or other programs, and we also work with patients to complete applications for financial assistance for their hospital bills. Remember, state law mandates all hospitals to write off or discount the bills of a qualifying individual. As an entity, we cannot deny care to any person regardless of their race or ability to pay.
TRH is a public hospital district. The source of most of the revenue received by public hospital districts is the same as for all other hospitals: private and public insurance. Also, as junior taxing districts, public hospital districts have statutorily-limited access to property tax dollars but these tax dollars represent a very small proportion of their total revenue. In 2015, Three Rivers Hospital was estimated to collect $1,258,962 from property taxes, which is about 6% of our total gross billed revenues.
The hospital has focused concentrated efforts over the past several years to determine the services that the patrons of our district utilize and need or like to see while at the same time, determining the financial feasibility of the service along with the utilization. We realize that our hospital district cannot be everything to everyone, and we must very strategically determine the services we can offer. Some services have been expanded, like the primary care clinic, while others have been sold or eliminated. No decision is taken lightly and we consider not only the finances of a service, but whether or not we can meet the government regulations that must be followed to offer a service.
The hospital has implemented several different reduction plans and we are now focusing on the Lean methodology to make our operations more efficient. TRH has made significant cost reductions and because we lacked the cash flow to fund capital improvements and equipment purchases, we now have several important needs. While we strive to be a more efficient facility, we know that in order to do this, we must invest in the building and equipment.
TRH has two Wildly Important Goals: to break even operationally and to provide the ideal patient experience. We continue to work on operationally breaking even so that the tax revenues we do collect can fund ongoing capital needs. We also feel very strongly that to provide the ideal patient experience, we need to improve our facility and equipment.
Please feel free to contact me, or any hospital personnel if you have further questions. We would love to be of assistance.
Chief Financial Officer