More than a year into the pandemic, and now with over 150 million Americans fully vaccinated, the US healthcare system is easing closer to recovery.

However, financial losses from the COVID-19 pandemic will have lasting effects on providers who don’t quickly build a more resilient healthcare revenue cycle.

According to Kaufman Hall’s June 2021 National Hospital Flash Report, volumes and margins increased compared to 2020, but still remain down compared to 2019.

Hospitals and health systems have been hit hard by low volumes, staggering revenues, and a slow recovery.

According to data from Strata Decision Technology, top inpatient procedures saw volume decreases of up to 99 percent during the early phases of the pandemic. This accounted for over 50 percent of total payments made to hospitals.

After such dramatic revenue losses, healthcare organizations are rebuilding their financial capacity and are working towards making 2021 a bounce-back year for their revenue.

To accomplish this, providers are keeping a close watch on handling their cash flow and managing increasing bad debt.

Pre-pandemic, hospitals already struggled with increasing bad debt (Bad debt refers to patient debt that is considered unrecoverable, i.e. when unemployment or bankruptcy prevents patient payments according to the new standard).

Healthcare providers have always struggled to collect payment from uninsured people and even from some insured people who can’t or won’t pay skyrocketing out-of-pocket costs due to the rise of high-deductible health plans.

In order to stabilize finances, many healthcare organizations have turned to outsourced revenue cycle companies to help their revenue cycles recover and adapt to a post-pandemic world.

Pre-Pandemic Bad Debt

Bad Debt
Bad Debt

Healthcare margins typically have been very thin, with the median hospital margin at 3.5%. Even before COVID-19, a number of U.S. hospitals struggled with negative margins—in other words, they were losing money on operations.

In 2018, approximately 21 percent of all active hospitals reported $10 million or more in bad debt. A study from TransUnion also showed that patient balances after insurance (PBAI) increased by more than 52 percent between 2012 and 2017.

In the same period, Medicare bad debt, which occurs when recipients don’t pay deductibles and coinsurance, increased by about 18 percent (totaling nearly $3.7 billion).

Prior to the pandemic, the rate of uninsured patients increased incrementally for several years despite an improving economy. The uninsured count grew from 26.7 million in 2016 to 29.2 million in 2019.

This increase in uninsured patients often results in more bad debt for healthcare providers.

COVID-19’s Financial Impact to Healthcare

The American Hospital Association (AHA) estimates that US hospitals incurred at least $323.1 billion in losses in 2020 due to a combination of reduced revenue and increased costs during the pandemic.

The economic downturn brought about by the pandemic has disrupted insurance coverage for millions of people who end up uninsured.

According to an Urban Institute report, an estimated 7.3 million workers and their dependents would lose their employer-sponsored insurance (ESI) due to unemployment as a direct result of the COVID-19 pandemic.

Because of this, more than 11 million people are estimated to turn to publicly-supported insurance such as Medicaid, the Children’s Health Insurance Program (CHIP), and government-subsidized coverage on the Affordable Care Act (ACA) Marketplaces.

This shift in coverage means healthcare providers and practices will rely more on Medicaid and self-pay patients in the aftermath of the pandemic.

With wider losses in coverage, 47% of hospitals saw an increase in bad debt and uncompensated care in 2020, according to a Kaufman Hall Performance Report.

Hospitals across the US also saw their median operating margin drop 55.6 percent throughout 2020.

A recent analysis by Kaufman Hall also revealed that nearly 40% of hospitals may face negative margins in 2021, even with a smooth vaccine rollout scenario.

Providers Turn to Outsourcing to Reduce Bad Debt

Increasing healthcare costs, medical billing complexity, and self-pay patients were already leading to a rise in outsourcing of medical billing services pre-pandemic.

Now that COVID-19 has presented even more challenges to healthcare revenue, providers are finding ways to reduce overhead costs by turning to revenue cycle management (RCM) outsourcing.

Many providers have found themselves inadequately prepared to handle billing and collections amidst the pandemic with suboptimal collection rates and weakening margins, leading them to partner with revenue cycle management (RCM) companies to assist them.

Nearly 90% of hospitals have either outsourced or planned to outsource their billing functions during the pandemic, according to a 2020 Black Book report.

Reducing bad debt can result in a direct increase in revenue and can significantly move the revenue needle.

Benchmarks show that bad debt as percentage of revenue in hospitals is as follows: 1.63% at for-profit hospitals, 1.45% at not-for-profit hospitals, and 3.23% at government hospitals.

This means that a 10 percent reduction in bad debt for a not-for-profit healthcare system with an annual revenue of $2 billion could result in savings of nearly $3 million. That’s $3 million more in revenue!

Providers look to trusted RCM vendors to significantly reduce their bad debt through:

  • Implementing patient payment plans and convenient payment options. During the pandemic, providers have found payment plan options to be very successful at improving patient collections. In fact, the flexibility offered by payment plans are quite crucial for many patients during this time as they struggle to make ends meet during the recession. Personalized payment plans can significantly improve patient experience to build loyalty long after the pandemic is over.
  • Fielding patient calls from well-trained staff. Many providers have found their call lines flooded with questions from patients regarding payments once they learn they had been furloughed and would be without income for several months. Having an RCM partner act as a seamless extension of a healthcare facility becomes a huge benefit with patient financial advocates who can communicate information accurately and show care and compassion as they counsel patients throughout the financial experience.
  • Verifying insurance coverage. A TransUnion Healthcare analysis revealed that between 1 to 5 percent of self-pay accounts written off as bad debt actually have billable insurance coverage. Identifying insured patients who are also Medicaid eligible can increase hospitals’ revenue recovery from Medicare bad debt by as much as 10% a year.

Many unknowns persist surrounding COVID-19 and its impacts in the coming fall and winter months. This creates significant revenue volatility for hospitals and health systems nationwide.

Having a well-equipped and trusted RCM partner is key to succeeding during the pandemic, particularly since there are more uninsured patients and significant staffing challenges.



About Mnet

We believe every patient deserves a helpful, transparent, easy-to-navigate financial experience in healthcare.

Mnet is the premier revenue cycle management & technology provider to the surgical industry. Mnet provides customized patient-pay solutions to surgical hospitals and ambulatory surgery centers. Mnet Health partners with over 900 surgical facilities nationwide and is the preferred vendor to the leading ASC management companies in the US both directly with and in support of centralized billing offices.

Mnet’s tailor-made brand, PaySUITE, is a white-labeled payment technology platform that helps surgical facilities, and their providers grow their business by helping patients pay. Mnet’s patient-pay solutions significantly increase self-pay collections while creating a better financial experience for patients. For more information, visit mnethealth.com.