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Tip: Managing uncompensated care

Compliance Monitor, April 20, 2005

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Healthcare financial managers face the increasing challenge of managing not only revenue and expenses, but also uncompensated care. Uncompensated care represents services provided to patients for which the provider receives no payment. There are two classifications of uncompensated care:

• Bad debt accounts are defined as accounts where the responsible party has the ability to pay but does not do so in a timely manner or without intervention from an external collection agency.
• Charity accounts are accounts where the responsible party does not have the ability to pay based on a defined set of income and asset criteria. Providers may discount charity accounts fully or partially, based on income qualification guidelines.

Hospitals have traditionally structured their charity programs to the Federal Poverty Guidelines (FPG), which the government updates annually. However, in the past few years, there has been a trend to expand the charity eligibility to greater percentages of the FPG.

Uncompensated care as a percentage of expenditures has remained relatively consistent, ranging from a high of 5.8% in 2000 to a low of 5.1% in 2002.

At the same time, the amount of uncompensated care provided has increased from a low of $21.5 billion dollars in 2001 to $24.9 billion dollars in 2003.

On an adjusted patient day basis, the cost to healthcare providers has followed a similar pattern, ranging from a low of $69.51 per adjusted patient day in 2001 to $78.75 per adjusted patient day in 2003.

With hospital operating margins in 2003-2004 ranging from -1.84% to 4.1%, the incorporation of contemporary uncompensated care processing is an important aspect of healthcare financial management.

This tip is excerpted from Charity Care: Tools to Manage the Uninsured Population by Sandra J. Wolfskill, FHFMA. Copyright 2005 by HCPro, Inc. For more information, click here.

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