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Hospital bad debt is rising, but not at Rice

WILLMAR -- While bad debt climbs at many Minnesota hospitals, especially in the Twin Cities metro area, Rice Memorial Hospital is going against the grain.

Bad debt at the city-owned hospital last year amounted to $1.7 million, or 1.1 percent of gross revenue. By contrast, the industry average was close to 3 percent in 2007 and it's continuing to rise.

Rice's level of bad debt has rarely exceeded 1 percent or so. In fact, the percentage of bad debt actually fell slightly last year, even as the economy worsened.

Why is Rice faring relatively well in an area where many other hospitals are struggling?

Dale Hustedt, the hospital's interim chief executive, thinks one reason might be the fact that fewer high-deductible health plans have penetrated the local market.

The high-deductible plans usually charge a lower premium, but patients often are left with $2,000, $5,000 or even more in out-of-pocket expenses if they end up needing hospital care.

"Even if they do have insurance, a deductible of $5,000 from Blue Cross can be tough to pay. We are seeing this throughout the industry," said Darryn McGarvey of LarsonAllen, the hospital's financial and auditing consultant.

Rice Hospital has tried to be proactive about collecting what patients owe and working with them to set up payment plans, Hustedt said. "We have been very diligent," he said.

He believes local culture also might have something to do with Rice's lower rate of unpaid bills.

"There seems to be a greater belief that they need to pay what they owe. I think that is just a reflection of the community itself," he said.

Economic pressures are starting to manifest themselves, however. Bad debts for the month of February alone rose to $240,000, about $65,000 higher than projected, said Bill Fenske, chief financial officer. Many people also have been taking longer to pay, he said.

It can be a dilemma for hospitals, Hustedt said. If they collect aggressively, patients can become upset and in some cases are forced into a hardship situation. But if they don't collect, it can hurt a hospital financially, especially when profit margins have become so thin.

"You as a hospital want to be as good a community member as possible, but if you don't run a good business you end up having to lay off employees," Hustedt said.

Some Twin Cities hospitals are taking more aggressive steps to get patients to pay. Some, for instance, are starting to ask for a down payment for services such as labor and delivery.

Measures such as these are not in Rice Hospital's immediate future, Hustedt said. "We don't have any plans right now to change what we're doing."