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President’s Budget Update

DATE: May 17, 2018

The impact of proposed bad debt changes

Overview

In February, the Department of Health and Human Services (HHS) released its FY 2019 President’s proposed budget, Putting America’s Health First. DataGen analyzed of the potential impacts of some components of this budget. One area that caught our attention was how the proposed budget affects bad debt payments. The new budget aims to reduce payments for reimbursable bad debts for most hospitals from 65% to 25%, beginning in 2019.

Analysis

HHS’ aim to reduce reimbursements for allowable bad debts has precedence in a cut from 2013, though that one was far less dramatic, reducing bad debt payments for standard acute care hospitals from 70% to 65%. At the time, Critical Access Hospitals (CAHs) had their reimbursable bad debt amounts reduced from 100% to 65% over three years.

In the new budget, CAHs and rural hospitals with fewer than 50 beds would remain at the 65% reimbursement level. However, all other hospitals—including those in predominantly urban areas or larger hospitals in rural areas—will see their bad debt reimbursements dropped to 25%.

This shift is, according to HHS, an effort to change Medicare payments to become more reflective of commercial payer rates; those commercial payers currently do not account for bad debt payments at all.

Impact

It’s difficult to overstate the gravity of this change. While the remaining protections for CAHs and small rural hospitals is beneficial, this has the potential to fundamentally alter how other hospitals—ones that rely on the current level of reimbursement to help provide care to vulnerable populations—do business.

This budget still requires legislative action to pass. Hospitals should begin advocating against the further progress of this in Congress. If, however, the legislation does go into effect, hospitals will need to immediately—and in some cases, drastically—adjust their budgets.

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