<0> Fitch: High Levels of Uncompensated Care - Headwind to Hospitals' Growth </0>
Fitch RatingsMegan Neuburger, +1-212-908-0501Senior DirectorFitch Ratings, Inc.One State Street PlazaNew York, NY 10004orRobert Kirby, CFA, +1-312-368-3147DirectororCaitlin Blalock, +1-312-368-3154AnalystorMedia RelationsBrian Bertsch, New York, +1-212-908-0549
The trend in uncompensated care and bad debt expense for hospitals has been basically consistent over the past year, according to a new report published by Fitch Ratings. High levels of uncompensated care have not abated during the economic recovery and growth in bad debt expense has recently provided a headwind to growth in reported revenue in the for-profit hospital sector.
Higher levels of uncompensated care are due to various factors including elevated unemployment, more uninsured patients, and increasing patient responsibility for health care costs. Elevated uncompensated care highlights the need for close scrutiny of hospitals' bad debt accounting methodologies, according to a report published today by Fitch Ratings.
Hospitals and other healthcare service providers essentially extend credit to uninsured and underinsured patients at the time of treatment. Treating such patients means these providers recognize a substantial amount of revenue that they do not ultimately expect to collect. When reviewing a healthcare provider's financial position, it is important to consider whether a company's bad debt reserve methodology appropriately measures its uncollectible revenue.
Caring for the uninsured population is the most important driver of hospitals' bad debt expense. The health insurance expansion elements of the Affordable Care Act (ACA), including the expansion of state Medicaid programs and the requirement for individuals to purchase health insurance, will reduce hospitals' financial burden of providing care for uninsured individuals beginning in 2014.
Fitch currently forecasts revenue and EBITDA growth across the group of for-profit hospital companies in 2014 due to the ACA health insurance expansion, with a reduction in bad debt expense providing most of the benefit. However, forecasting the precise effects of the ACA insurance expansion on uncompensated care and bad debt expense is complicated by uncertainty over the pace and progress of the growth of the insured population.
The full report 'For-Profit Hospital Insights: 2013 Edition of Fitch's Annual Review of Bad Debt Accounting Policies and Practices' is available at '.'
The report includes an in-depth discussion of bad debt accounting practices and reserve methodologies plus a company-specific presentation of historical trends in revenue, bad debt expense, accounts receivables, and the allowance for doubtful accounts.
Additional information is available at ''.
Applicable Criteria and Related Research:
'Margin Preservation Strategies: Different Angles (U.S. Hospitals and Health Insurers)' Oct. 1, 2013;
'Hospitals Credit Diagnosis' Sept. 27, 2013
'The Affordable Care Act and Healthcare Providers: Assessing the Potential Impact', May 1, 2013;
'Fitch's High-Yield Healthcare Checkup', Jan. 30, 2013;
'2013 Outlook: U.S. Healthcare', Nov. 29, 2012;
'U.S. Leveraged Finance Spotlight Series -- Community Health Systems, Inc.', Oct. 1, 2012;
'U.S. Leveraged Finance Spotlight Series -- HCA, Inc.', Oct. 24, 2012;
'Corporate Rating Methodology', Aug. 5, 2013.
Applicable Criteria and Related Research: For-Profit Hospital Insights (Fitch's Annual Review of Bad Debt Accounting Policies and Practices)
Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage
U.S. Leveraged Finance Spotlight Series: HCA Holdings, Inc.
U.S. Leveraged Finance Spotlight Series Community Health Systems, Inc.
2013 Outlook: U.S. Healthcare -- Navigating a Dynamic Operating and Regulatory Environment
High-Yield Healthcare Checkup: Comprehensive Analysis of High-Yield U.S. Healthcare Companies
The Affordable Care Act and Healthcare Providers (Assessing the Potential Impact)
Hospitals -- Credit Diagnosis: Escalating Industry Consolidation Pressures Credit Profiles
Margin Preservation Strategies -- Different Angles (Credit Implications for U.S. Hospitals and Health Insurers)