Unpaid hospital bills still growing in outlier Minnesota

Growth in Medicaid coverage under the federal health law has helped hospitals in some states significantly lower the amount of debt from patients who don't pay their bills, according to a new report.

It's been a different story with Medicaid expansion in Minnesota, where hospitals traditionally have had less of what's called "bad debt."

A Star Tribune analysis shows that unpaid bills at Minnesota health systems increased by nearly $80 million last year, but accounted for a similar share of overall revenue — about 2.6 percent — as they did during the previous fiscal year.

"When you're starting from such a good position, there's only so much more benefit you can have," said ­Daniel Steingart, an analyst with Moody's Investors Service.

A report this month from Moody's found that bad debt as a percentage of revenue dropped significantly in 2014 among 28 states that expanded Medicaid, a state-federal program for people near or below the poverty line. Whereas the rate was 4.8 percent of median revenue in 2013, the preliminary estimate for 2014 was 3.7 percent.

Among states that didn't expand eligibility, bad debt as a percentage of revenue declined at a more modest pace, according to Moody's.

"Following the first year of Medicaid expansion under the Affordable Care Act, bad debt and charity care are trending downward for the first time in years, with a significantly larger drop in states that expanded Medicaid," the report states.

A Star Tribune analysis of audited financials for 19 health systems operating in Minnesota showed a similar pattern.

In fiscal 2013, health systems here reported about $687 million in bad debt, which was about 2.5 percent of the health systems' combined revenue of $27.7 billion. For fiscal 2014, the Star Tribune analysis found bad debt grew to $766 million, a larger tally that grew faster than overall revenue. Some of the systems operate on the ­calendar year, and some end fiscal years on June 30.

Preliminary figures from the Minnesota Hospital Association show a roughly 3.2 percent increase in bad debt for state hospitals last year, as well as a nearly 10 percent decline in charity care. The net effect is that uncompensated care costs held roughly steady last year, according to the hospital association.

Minnesota is different for several reasons.

The state did a partial expansion of Medicaid under the federal health law back in 2011, said Matt Anderson of the Minnesota Hospital Association, so the 2014 impact was less dramatic. Plus, many people who gained coverage through the health law in Minnesota previously were covered by state public health insurance programs, Anderson said, so the effect on bad debt totals was muted.

"We were not anticipating as significant of a decrease in uncompensated care," Anderson said. "We had a very low uninsured rate to begin with."

What's changing is that a greater share of hospital bad debt is coming from unpaid bills among people who have health insurance, Anderson said. Outside of Medicaid changes, coverage expansion driven by the health law has featured many people opting for commercial policies that have low premiums but high deductibles.

"You used to have uncompensated care that the person was uninsured, and it was just a question of whether or not you knew that up front and called it charity care, or you didn't find out until after you billed them and you called it bad debt," Anderson said.

In the first year of major insurance reforms under the health law, Minnesota's uninsured rate fell from about 8 percent to roughly 5 percent. The shift means a hospital's per-person risk of unpaid bills is more routinely limited by a deductible.

"You may have a larger portion of the population that has a level of medical debt, or medical financial obligation," Anderson said. "But the raw dollar amount of their obligation may be lower."