Medical debt issues compounded by financial toll of the pandemic

Since the pandemic began, more than 134,000 hospital employees have lost their jobs, and several health systems in Kansas have announced layoffs or furloughs. Olathe Health has not been spared.

This is the second part of a two-part story produced by the Kansas Leadership Center Journal. You can find part one here.

By Barbara Shelly, Chris Green, Mark Wiebe and Matthew Kelly

The pandemic and its devastating economic effects, however, add another wrinkle to the issue of medical debt. When hospitals stopped providing nonemergency care to prepare for a surge of COVID-19 patients, it caused budgets to tank almost universally.

Citing figures from the American Hospital Association, The New York Times reported that hospitals are losing an estimated $50 billion a month. Hospitals across the country reported seeing 40% to 70% fewer patients from late March through early May. Furthermore, more than 134,000 hospital employees have lost their jobs, and several health systems in Kansas have announced layoffs or furloughs.

Olathe Health has not been spared. Jensen, the Olathe Health spokesman, says that compared with last year, the system has seen surgeries drop 63%, cath lab procedures decline 51%, primary care visits drop 43%, emergency visits decline 39%, and overall hospital admissions and observations are down 41%.

Federal funding to help offset the impact of the coronavirus has come in the form of $5 million in federal relief to Olathe Medical Center and $800,000 for the Olathe Health Physicians, an associated nonprofit. But the aid only offsets about 20% of the hospital’s losses, Jensen says, and since losses are continuing, the percentage it covers will shrink as the pandemic and the economic challenges it has created continue.

To weather the storm, the health system has drawn on reserve funds, reduced executive compensation, initiated a hiring freeze with minimal exceptions and delayed or eliminated non-critical capital and non-labor expenses. In June, it also put in place a voluntary retirement program with enhanced severance and health benefits that 115 associates and providers have signed up for. A functional realignment has trimmed the positions of another 33 associates, although some may stay with the organization in other roles.

“These are difficult decisions, and they are not being taken lightly,” Jensen says. “We believe the resulting financial impact will help us better position ourselves for continuing our mission as a not-for-profit health care provider. I continue to be inspired by our associates’ and providers’ commitment to caring for our patients and keeping our communities safe during this uncertain time.”

Other health care systems face similar challenges.

At AdventHealth Shawnee Mission, which has received about $10 million in federal relief payments, government aid has only partially offset significant losses in revenue from the cancellation of elective and outpatient procedures during stay-at-home orders, spokeswoman Morgan Shandler says.

“We are now reopening our needed health care services to our community, but our surgery, outpatient services and emergency visits are still not at pre-pandemic volumes,” she says.

While AdventHealth Shawnee Mission has not furloughed or laid off staff, the health system has several cost recovery initiatives, including a pause in hiring. Some team members have been deployed into new roles, such as COVID-19 screening and testing, Shandler says.

Despite those financial challenges, the health system also implemented new practices to extend “financial grace” to struggling patients. Those changes include extending the validity of financial assistance applications from six months to 12 months, offering a 30-day payment grace period to patients who inform the hospital that they’ve been negatively impacted by COVID-19, increasing payment plan time frames from 24 to 36 months, lowering the minimum monthly payment to $25, and directing bad debt account management vendors to allow for flexibility in payment plan terms and extend grace around late or overdue payment.

“We understand how challenging these times can be financially and how stressful financial pressures can be for our patients and their families. These emergency financial assistance procedures are intended to help alleviate those challenges,” Shandler says.

Based on data about default judgments downloaded from the Johnson County District Court website, jococourts.org, and analyzed by The Journal.

The University of Kansas Health System has received about $67 million in federal provider aid for its Kansas City metro operations, says Doug Gaston, senior vice president and chief financial officer. But that only covers about half of the nearly $120 million the system lost between March and May. The system decided not to furlough staff, Gaston says, because it needs that workforce on hand to help increase revenue as patients return.

In all, the federal government has provided at least $175 billion in relief funds to hospitals and other health care providers on the front lines of responding to the coronavirus through the CARES Act and the Paycheck Protection Program as well as the Health Care Enhancement Act. About $694 million of that funding has flowed to Kansas providers.

Despite that aid, the health care sector faces significant challenges in trying to bounce back. An increase in unemployed workers means fewer prospective patients with health insurance, who are more profitable to serve than patients on government programs such as Medicaid.

“We’re watching this really closely, because we don’t know if we’re going to see a shift in that payer mix,” says Colette Lasack, vice president of revenue cycle operations at the KU Health System. “We expect that we’re probably going to see more patients without insurance. But depending on their situation, some of those folks will also be eligible for the (ACA) marketplace plans where they might not have before.”

The financial pressure from the pandemic is likely to put more pressure on hospitals that depend more heavily on privately insured patients, The New York Times has reported. According to its IRS filings, Olathe Medical Center at present derives a very small percentage of its overall revenues from patients on Medicaid.

‘A hypercompetitive environment’

Olathe Medical Center’s legal activity has taken place against the backdrop of increasingly competitive business environments for health systems.

Olathe Health is a regional health network that serves southern Johnson County, and Miami, Linn and Franklin counties. In addition to Olathe Medical Center, it also includes Miami County Medical Center and the 40 family care and specialty clinics of Olathe Health Physicians. But it’s southern Johnson County where a number of health systems are competing to win the business of wealthy, well-insured patients using top-flight amenities.

The Kansas City Business Journal ranked Olathe Medical Center 10th in admissions among acute care general hospitals in the metro area with nearly 12,000 in 2017. The newspaper ranked it eighth in revenue, but the hospital is much smaller than several of the billion-dollar behemoth systems expanding in the region.

Jim Dockins, associate professor of management at the Rockhurst University College of Business, Influence and Information Analysis in Kansas City, Missouri, notes at least four other hospital chains have been adding beds, clinics and free-standing emergency rooms in southern Johnson County even as poorer neighborhoods in Wyandotte County and across the state line in Missouri go underserved.

“This is indeed a hypercompetitive environment,” Dockins says. “Everybody builds houses on the edges of town where it’s cheaper, and the hospitals tend to migrate toward the peripheries, because typically most people that are out there building and buying houses are going to have insurance.”

Keeping revenues up is likely on the minds of Olathe Health officials, Dockins says, especially after its recent $100 million expansion, funded in part by bonds issued by the city of Olathe.

“If you look at the amount of debt that they assumed over the past 10 years with their ongoing building program, I think that puts tremendous pressure on their bottom line,” says Dockins.

Prior to the pandemic, Olathe Medical Center generally reported positive net incomes overall. In its five most recent filings available from the IRS, the nonprofit hospital reported collecting at least $40 million more in revenues than it spent in each year between 2013 and 2017. Miami County Medical Center reported positive net incomes between $1.5 million and $4 million over the past six years. The Olathe Health Physicians group has reported annual losses ranging from $23 million to $32 million. The expenses associated with Olathe Health System, a fourth nonprofit entity, primarily have to do with management of the system.

According to hospital community benefit reports, spending on charity care and means-tested government programs generally went up across the system, rising from $11.8 million to $12.9 million from 2013 to 2018.

The hospital’s IRS filings also indicated that its aid to patients has been shifting away from direct financial assistance at cost to covering unreimbursed charges through Medicaid. In 2013, Olathe Medical Center and Miami County Medical Center combined to spend $5.3 million on financial assistance at cost but, by 2017, that figure had fallen to $4.2 million. The hospital was asked to provide 2018 figures but did not respond.

The decrease in direct financial assistance coincided with a drop in its eligibility level for free care from 200% of the federal poverty level to 150% of the federal poverty level between 2015 and 2016, according to IRS filings. Such changes are not uncommon. In the years since the ACA passed, Kaiser Health News reports that nonprofit hospitals around the country have been offering significantly less free and discounted care, often on the basis that they have fewer uninsured patients. But reductions generally occur in states that expanded Medicaid.

Olathe Medical Center does provide 80% discounts for households at 151% to 200% of the federal poverty level, 65% discounts for households at 201% to 300% of federal poverty level and discounts for households above 300% of federal poverty level on a case-by-case basis for extraordinary medical expenses.

Its own reports indicate that Olathe Medical Center is often trying to collect on debts from patients who should actually be receiving aid. Like most Johnson County hospitals, Olathe Medical Center used to report little or no bad debt from patients eligible for financial assistance under its policies. However, in 2016 and 2017, 90% and 75% of its bad debt came from patients who were eligible for financial assistance. The hospital’s filings indicated that the biggest reason for the bad debt is that eligible patients didn’t apply.

Nonprofit hospitals are required not only to provide financial assistance but also to take steps to make sure patients know that it’s available. To adequately publicize financial assistance policies under IRS regulations, nonprofit hospitals must make the policy and application for assistance widely available on the web. They are also required to provide paper copies upon request and without charge, both by mail and in public locations in the hospital, including the emergency room and admissions areas. Other requirements include notifying members of the community who are most likely to require financial assistance about the policy as well as individuals who receive care at the hospital.

Olathe Medical Center says it offers several different programs to assist patients in paying their bills, including assistance obtaining public health insurance (if eligible), providing charity care (financial assistance) or establishing a payment plan through CarePayment.

Hospital officials did not provide any additional explanation for why a high percentage of patients are not making use of financial assistance they should be eligible for.

Mark Rukavina, business development manager at Community Catalyst’s Center for Consumer Engagement in Health Innovation, a national advocacy organization, says Olathe Medical Center’s high bad debt percentages in 2016 and 2017 are worth noting.

There could be a variety of reasons why a hospital is unable to reach eligible patients, he says.

“People may be embarrassed,” Rukavina says. “They don’t fully exercise their rights because of that. Just because of the mere fact that they get sick, which is something none of us have control of. Hospitals have an obligation to inform patients. They have an obligation to follow their policies, and patients bear some responsibility as well. But something is awry with those kind of percentages.”

Dealing with patients ‘up front’

Olathe Medical Center officials said that all patients are kept informed of all financial assistance opportunities available to them.

“Multiple billing statements are mailed over the course of 90 days after the date of discharge to the last known mailing address,” the hospital said in a statement. “Each billing statement contains a visible notice of the availability of and information about how to apply for financial assistance. The patient’s account is then provided to CarePayment to attempt to set up a payment plan. If no plan or contact is made, the patient is then sent a letter informing them their account is being sent to a collection agency for nonpayment. The letter outlines the possible collection actions that may follow if payment is not arranged. For a successful financial arrangement, it’s reliant on the patient to communicate with the company providing the assistance.”

Olathe Health officials say they’ve set their sights on encouraging the Legislature to expand Medicaid as a way to reduce the burden of medical debt for their patients. They cite a worsening insurance environment for patients as being at the core of the problem.

“Unfortunately, as you can see from national trends,” the hospital’s statement said, “the number of uninsured and underinsured patients in America continues to increase. According to the U.S. Census Bureau, 27.5 million Americans did not have health insurance in 2018. The rate of uninsured Americans recently hit its highest rate since 2014. In addition, many Americans are underinsured because of higher deductibles and changes in insurance plans, or do not have access to Medicare or Medicaid.

“We are actively trying to help improve access and coverage in our state. Last year, Olathe Health hosted leaders from both parties (Governor Laura Kelly and Senator Jim Denning) to discuss Medicaid expansion in Kansas and the role of nonprofit hospitals in our community.”

Some critics of aggressive medical debt collections say there are much more effective ways to deal with unpaid patient debt than by suing, coercing payment plans and garnishing wages.

While garnishment might be a legal way for medical providers and other creditors to collect debt, the approach carries plenty of downsides, says Simon Sandoval-Moshenberg, legal director for the immigrant advocacy program at the Legal Aid Justice Center in Virginia, which provides legal services and advocates for low-income individuals.

Because of limits on how much a patient’s paycheck can be garnished, it can often take a long time for someone to make good on a judgment, especially if their bill is accumulating interest as they attempt to pay it off. Depending on how much a person makes, there’s a chance that it might even be increasing as the result of a garnishment, Sandoval-Moshenberg says.

The revenue from the garnishment doesn’t do much to help the hospital’s bottom line, but it can be a massive hit for a debtor who works for modest wages.

“Low-income people tend to use the nontimely payment of bills as almost a form of credit to get them through emergency situations,” Sandoval-Moshenberg says. “But it’s one of the most expensive forms of credit because of the interest and late fees.”

Rather than trying to collect whatever they can get right away, creditors might be better served to take a wait-and-see approach, he says.

“It is taking people who are in a financial hole and it is making it much more difficult for them to start climbing out of the hole,” Sandoval-Moshenberg says of garnishments.

Compared with Olathe Medical Center, most of the hospital’s nearby competitors are more generous with financial assistance and report being proactive at ensuring the patients who are eligible for financial assistance actually receive it. AdventHealth Shawnee Mission and the University of Kansas Health System both offer free care to households who earn up to 200% of the federal poverty level, which amounts to about $52,000 for a family of four.

The Saint Luke’s Health System offers free charity care to households that make up to 133% of the federal poverty level for unscheduled admissions. Patients making 134% to 200% of the federal poverty level have the responsibility for making a $700 copay per admission while those making 201% to 300% of the federal poverty level are responsible for a $1,500 co-pay.

Partially as a result of spending less on direct financial assistance and Medicaid, Olathe Medical Center also reports providing less benefit to the community than neighboring nonprofit hospitals. About 4.48% of its total operating expenses were spent on community benefits in 2017, less than AdventHealth Shawnee Mission (6.51%) and Saint Luke’s Hospital of Kansas City (9.89%), but more than Saint Luke’s South in Johnson County (2.67%).

A recent study in Inquiry:  A Journal of Health Care Organization, Provision and Financing found that the average value of a nonprofit hospital tax exemption is 5.9% of total expenses, while the average level of total community benefits is 7.6% of expenses. At least one-third of all nonprofit hospitals receive more benefits from their tax exemptions than they provide in community benefits. But that study uses broader sets of data than are found in IRS filings.

Olathe Med’s nearby competitors also tend to be far less likely to try to collect unpaid bills from patients who should be eligible for financial assistance. In 2017, before it changed its name, Shawnee Mission Medical Center reported that just 1.68% of its bad debt was attributable to patients eligible for its financial assistance policy. Saint Luke’s reported that 0% of its bad debt came from patients eligible for financial assistance.

In their filings with the IRS, metro area hospitals describe the special measures they take to make sure patients who are eligible receive financial assistance. However, few were willing to talk in more detail about their financial assistance policies, how they ensure that patients use them, and their policies and procedures for collecting unpaid bills.

Spokeswomen for Saint Luke’s, Children’s Mercy Kansas City and Overland Park Regional Medical Center did not respond to multiple requests from The Journal for information about their collection and financial assistance policies.

The KU Health System did make one of its administrators available to be interviewed. Lasack, vice president of revenue cycle operations, says the system prioritizes being fair and consistent across its patient base and works to confirm the income of patients, to understand the circumstances they face and to exhaust all avenues of coverage before trying to collect on a bill.

The health system, which provides about 13% of the $96.2 million it spends on uncompensated care to Johnson County patients, has a team of 40-plus financial counselors and an outside contractor to work with patients to determine what they are eligible to receive.

Like Olathe Health, the KU Health System and related entities sue patients and seek garnishments in Johnson County. Over the past six years, it has sought about 40 garnishments each year to collect on uncontested judgments compared with the 130 and 360 garnishments that have been sought annually by Olathe Health System entities and Emergency Medicine Care, respectively.

When the system does allow a credit agency to take patients to court on its behalf, it is usually for amounts above $750, KU Health System spokeswoman Jill Chadwick says. The system also requires a double-check on any past charity care, to make sure the patient is not still in need, to consider whether the patient is receiving ongoing treatments and to take stock of any unusual circumstances. The past bad-debt history of the patient and whether they cooperated or not might also be considered.

Lasack says the KU Health System hasn’t changed any policies as a result of the pandemic. Since March it has worked to open lines of communication with patients experiencing layoffs, furloughs and reduced hours and provide flexibility.

“We had patients starting to call us that were in a very different financial situation than they were in the week before,” Lasack says. “We have worked really hard to be flexible with our patients, whether that means extending their payment plans, whether that means skipping a payment this month. Call us, let us know your situation. Really that’s what patients were asking for: ‘Work with us because we don’t know.’ Just like we didn’t know how long this was going to go on.”

Being able to have an open dialogue, where patients feel comfortable contacting the hospital and feel like their individual situations are being taken into consideration, is a crucial part of the process. In short, the hope is to move away from situations where patients feel surprised and hospitals feel obligated to chase down unpaid bills.

“Where we need to move as an industry is, ‘How do we have that transparency up front and educate that patient about what to expect?’” Lasack says.

Many of the patients sued by Olathe Medical Center and Emergency Medicine Care told The Journal that they wanted to pay their bills. They understood that nonprofit hospitals need to have sufficient revenue to operate. Hospital officials, for their part, acknowledge the challenges patients face and say they’re making changes to help, even as their collection lawsuits and garnishments vastly outstrip those of neighboring hospitals.

Like so many nonprofit hospitals, Olathe Medical Center describes its mission in lofty, egalitarian terms: “To help people through healing, health and happiness.” The hospital and emergency room providers contend they live out this mission through their care of patients. But The Journal also asked hospital officials how they saw their collection lawsuits and garnishments fitting with that mission.

It was one of several questions hospital officials never answered.

Maya Miller, engagement reporter at ProPublica, contributed to this story by providing frequent advice and insight.