Charity care or bad debt?

Charity care or bad debt?

June 24th, 2012 by Mariann Martin in News

L to R: Erlanger Hospital, Memorial Hospital, Parkridge Hospital.

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Many hospitals count bad debt in their uncompensated costs, but experts differ on whether it should be included. They acknowledge a gray area between charity care and bad debt -- more of a continuum rather than two absolutely different numbers.

But bad debt includes bills people chose not to pay for whatever reason, rather than only those people who are not able to pay. Any business has bad debt, but doesn't get to claim it as a charity write-off, some experts say.

Under the new law, nonprofit hospitals are permitted to add bad debt in their tax filings but are required to calculate it in a different line item.

The Ernst & Young study of nonprofits' 2009 tax filings did not include all bad debt, but only bad debt attributable to charity care, if a hospital provided it.

That category is not defined in the Joint Annual Reports filed by Tennessee hospitals and used as the basis for this article.

Locally, Erlanger includes bad debt in its uncompensated care numbers, but Memorial does not include it in its community benefits calculations.

Parkridge's charity care numbers are lower and its bad debt higher because of strict financial reporting required as a for-profit, according chief operating officer Jay St. Pierre. Much of the bad debt is essentially charity care, he said.

At Parkridge, a hospital bill must be greater than $1,000 before Parkridge considers a person's eligibility for charity care, so smaller bills automatically go into bad debt.

Neither Erlanger nor Memorial sets a bottom threshold for someone to be eligible for charity care.

Memorial President James Hobson said Memorial works with patients to set up reasonable payment plans and any collections agencies must follow strict guidelines.

"We live in an area where people take their obligations seriously," he said.

Jessica Curtis with Community Catalyst, a Boston-based national health care advocacy group, said she does not think a hospital should equate charity care and bad debt. Instead, hospitals should make more effort to see whether patients qualify for charity care if they can't pay their bills, she said.

If a person qualifies for charity care, he is not billed nor is his bill turned over to a collection agency, she said. Unpaid bills show up on credit ratings and can even lead to bankruptcy, she said.

"From a patient's perspective, it is a very different process," she said.