|[October 24, 2013]
Fitch: High Levels of Uncompensated Care - Headwind to Hospitals' Growth
NEW YORK --(Business Wire)--
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
The full report 'For-Profit Hospital Insights: 2013 Edition of Fitch's
Annual Review of Bad Debt Accounting Policies and Practices' is
available at 'www.fitchratings.com.'
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 'www.fitchratings.com'.
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
High-Yield Healthcare Checkup: Comprehensive Analysis of High-Yield U.S.
The Affordable Care Act and Healthcare Providers (Assessing the
Hospitals -- Credit Diagnosis: Escalating Industry Consolidation
Pressures Credit Profiles
Margin Preservation Strategies -- Different Angles (Credit Implications
for U.S. Hospitals and Health Insurers)
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE
RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR
RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY
CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
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