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Bad debt up at Duluth hospitals

2014 uncompensated care

DULUTH, Minn. -- Duluth's largest hospital experienced an increase in bad debt more than six times the statewide average last year, according to data released by the Minnesota Department of Health last week.

Bad debt -- payments that hospitals expect but never receive -- continues to climb statewide in Minnesota, said Alisha Baines Simon, a supervisor in the health department's economics program.

But at Essentia Health-St. Mary's Medical Center, bad debt jumped 59.4 percent from 2013 to 2014, according to state health department data. That's compared to a statewide average increase of 9.3 percent.

St. Luke's saw an increase in bad debt of 17.2 percent.

Simon said she couldn't speculate on debt figures for specific hospitals, but bad debt in general has been rising for the past decade statewide.

"At the same time, we have seen changes in cost-sharing where people who have health insurance tend to have higher cost-sharing" such as higher deductibles or higher co-pays, Simon said. "We think there's a relationship."

Eric Lohn, chief financial officer at St. Luke's, agreed.

Plans have come with increasingly higher deductibles, ranging as high as $15,000, Lohn said.

"Even an insured person cannot afford that deductible," he said. "That tends to gravitate toward bad debt."

Kevin Boren, chief financial officer for Essentia Health's East Region, said bad debt fluctuates from year to year, and will be lower at St. Mary's in 2015. There's a "really thin line," he said between cases that are written off as charity care in the first place and those for which payment is expected but that end up being written off as bad debt.

"We serve all patients regardless of their ability to pay," Boren said.

Although bad debt increased, charity care dropped 22.4 percent statewide, according to the health department. That was only the second time since 2001 that charity care fell in Minnesota.

The percentage of charity care fell as the percentage of uninsured Minnesotans also dropped since the establishment of the Affordable Care Act, said Stefan Gildemeister, the state's health economist. Although the data aren't sufficient to show a direct link between the two, "there appears to be a correlation," he said.

Charity care declined by 70.8 percent from 2013 to 2014 at St. Luke's, according to the data. That didn't result from any policy change at the hospital, Lohn said. He attributed the decline largely to the expansion of Medicaid in the state.

"So a lot of patients who historically had qualified for charity care were (now) qualified through Medicaid," Lohn said.

At St. Mary's, charity care actually increased, by 1.6 percent.

Boren agreed that Medicaid expansion has moved some patients statewide out of the charity care category.

But Essentia Health has been identifying more patients as eligible for charity care early in the process, Boren said.

"Over time we'd like to make sure that the folks that deserve charity care are in that charity care bucket," he said.

Charity care and bad debt combined produce a hospital's uncompensated costs. At St. Mary's, bad debt in 2014 was $8.4 million and charity care $2.7 million, for a total of $11.1 million in uncompensated care, according to the state data. At St. Luke's, the totals were $2.1 million in bad debt and $2.1 million in charity care, for a total of $4.2 million.

Those numbers amounted to 3.3 percent of operating expenses for St. Mary's and 1.4 percent for St. Luke's.

"Neither of those numbers are alarming," Simon said. In comparison, Hennepin County Medical Center, the state's largest provider of uncompensated care, spent 5.1 percent of its operating costs in charity care and bad debt, she said.

The percentages would be higher in other states, such as Texas, Boren said. "We're lucky to live in a state where we have rather robust safety net programs."

But bad debt and charity care don't truly make up all of a hospital's uncompensated costs, Lohn said. Last year, the hospital spent almost $11 million more than it was reimbursed on Medicaid cases and $48 million more on Medicare cases, he said.

All told, "the number gets in excess of $80 million," Lohn said. "Then you're getting into a percentage that's more than 10 percent, and that's concerning."