CLOUDS GATHERING? Hospital systems post strong numbers, but rising bad debt among worries.(Special Feature)(Survey)

Byline: Melanie Evans and Vince Galloro

Health systems face rising write-offs for patients who can't pay their bills, according to results of a new Modern Healthcare survey, a trend that spells even more trouble for providers as food and fuel prices climb and employment falls.

Modern Healthcare's 32nd annual survey for the first time asked systems to provide annual bad-debt expenses. The survey, though not scientific, offers a snapshot of hospital systems' financial health and operations. Among the survey's nearly 200 systems responding, results suggest losses from uninsured and underinsured patients are pinching budgets at a time when consumers, employers and states are struggling with financial troubles of their own as the economy struggles to skirt a recession.

"It's a real problem now,'' says Gordon Mountford, a managing director for Wellspring Partners, a subsidiary of the Huron Consulting Group, addressing hospitals' bad-debt expense. "It's going to be much more chronic.'' Mountford oversees the consulting firm's revenue-cycle practice and says that hospitals face a growing number of patients who don't pay, and patients who owe more as health plans shift additional financial risk from employers to individuals. "Obviously, the economy and what's going on in the marketplace isn't helping either,'' he says.

Operating margins contracted slightly in 2007 to a median 3.42% from 3.75% the prior year, Modern Healthcare's survey shows. Still, systems surveyed enjoyed an 8.4% increase in net patient revenue last year to $318.3 billion from $293.5 billion in the previous year. Income from operations rose 9.5% in 2007 to $12.7 billion from $11.6 billion a year earlier.

Net revenue, which includes gains from investments, climbed 8.9% to $356.6 billion from $327.6 billion. Net income jumped 23.8% to $23.4 billion from $18.9 billion in 2006.

The figures include revenue and income reported by 189 systems for both 2007 and 2006. The Veterans Affairs Department is excluded from aggregate figures because of differences in its …