Why Hospitals Are Seeing An Increase In Bad Debt

Modern Healthcare – Wednesday, June 18, 2025
By Caroline Hudson

Bad debt is rising among some hospitals, largely driven by an increased burden on patients to cover the costs of care.

Hospitals and health systems are working to mitigate the financial impact of bad debt by shoring up revenue cycle processes and payment collection procedures, but obstacles such as claim denials are creating more challenges.

As of April, bad debt as a percentage of gross revenue had increased at a median 2.9% year over year, according to an analysis from consulting firm Kaufman Hall, which pulled data from about 700 hospitals.

Bad debt refers to revenue that providers were expecting to receive from patients or payers, but did not end up collecting despite multiple attempts. Providers often write off these unpaid balances once they are deemed uncollectible.

The unpaid balances are separate from charity care, which is free or discounted healthcare offered to patients who cannot otherwise pay for treatment.

Many hospitals are reaping the benefits of higher volumes, but more patients do not necessarily translate into a stronger balance sheet. Much of the payoff depends on payer mix. Hospitals serving a larger portion of uninsured patients or patients covered by government payer plans tend to be more at risk for bad debt balances.

But some consultants say bad debt is growing across the board at hospitals of all types and sizes.

“As hospitals’ gross revenue has grown, the net revenue growth rate isn’t quite as great,” said Erik Swanson, senior vice president of data and analytics at Kaufman Hall.

Swanson noted hospitals are waiting longer to write off the debt in the hopes of collecting some payment, but bad debt is still rising.

Providers say in recent years, bad debt balances have become less dependent on whether a patient has insurance. As costs rise, even insured patients are less likely to be able to cover their portion of the bill.

“Greater amounts of patient responsibility leave open generally greater risk for the inability to collect on those [payments],” Swanson said.

Dr. Gerard Brogan, chief revenue officer at New Hyde Park, New York-based Northwell Health, said the system is seeing increased bad debt stemming from high-deductible health plans. With a high-deductible plan, the patient agrees to cover significant out-of-pocket costs until a spending threshold is met, and the payers start sharing the costs.

Cleveland Clinic Chief Financial Officer Dennis Laraway said 87% of the system’s bad debt in 2024 stemmed from insured patients who did not pay their out-of-pocket cost share, including copays, high-deductible balances and coinsurance obligations. The Ohio-based system saw a 15% increase in bad debt from 2023 to 2024, he said.

Cleveland Clinic tried to implement a policy this month where patients were required to cover their copay for outpatient services ahead of time or appointments would be canceled. However, widespread backlash led the health system to soften its policy by offering 0% interest payment plans for patients to keep their appointments.

Dee Montee, vice president of revenue cycle at Scottsdale, Arizona-based HonorHealth, said she expects this year’s bad debt levels to be on par with 2024 levels, which were higher than 2023.

Other hospitals and health systems are staying mum on their bad debt levels. More than a dozen providers declined to comment or did not respond to requests for comment for this story.

Another factor driving additional cost burdens for patients — and systems — is the increase in payer denials.

As of April, initial denial rates had risen 7.6% year over year, often due to requests for additional information and questions about medical necessity. Write-offs due to final claims denials as a percentage of net patient service revenue soared by 33.3%, according to a study published this month by consulting company Kodiak Solutions. Kodiak pulls data from about 2,100 facilities.

The percentage growth in dollars for final claims denials largely stems from higher-cost inpatient claims, particularly with disputes over whether cases need inpatient- or observation-level reimbursement, said Matt Szaflarski, vice president of revenue cycle intelligence at Kodiak.

“The market is writing off right about 3% of their net revenue to final denials. The vast majority of not-for-profit providers across the country are operating at margins around the same amount, so this is their whole margin from a denials perspective,” Szaflarski said.

Szaflarski said hospitals should pick their battles with payers and not waste resources fighting denials for claims that are unlikely to bring in significant financial returns.

To combat rising bad debt, hospitals should identify the cause, whether it’s related to payer denials or other factors in the revenue cycle process, Swanson said. They should also be diligent about following up with patients for payment when appropriate, he said.

A Northwell spokesperson said the system focuses on front-end processes, such as securing prior authorizations and verifying insurance. Patients without insurance or those with high-deductible plans are proactively screened for financial assistance. Northwell also offers interest-free payment plans to patients, the spokesperson said.