Health systems and hospitals are witnessing an increase in charity care and encountering higher levels of bad debt. According to healthcare consulting firm Kaufman Hall's latest National Hospital Flash Report, these trends may be attributed to a growing number of individuals losing their Medicaid coverage.

In the midst of the COVID-19 pandemic, many states were compelled to extend uninterrupted Medicaid coverage to qualify for additional federal assistance, resulting in a significant increase in the number of recipients. However, Congress and the Biden administration have recently reached a consensus to terminate the provision for continuous coverage, prompting states to reevaluate Medicaid eligibility. As a consequence, a substantial number of individuals who were previously covered may now find themselves without insurance.

According to projections by the Kaiser Family Foundation, the exact figures remain uncertain, but somewhere between eight million to 24 million Americans are at risk of losing their Medicaid coverage. This impending change in eligibility criteria has prompted states to undertake a comprehensive reassessment of their Medicaid programs, potentially leaving millions of vulnerable individuals without the vital healthcare support they depend on.

Erik Swanson, the senior vice president of data and analytics at Kaufman Hall, has cautioned that hospitals are likely to witness an increase in the number of individuals without insurance or those postponing necessary medical care.

In a statement, Swanson highlighted the anticipated consequences of states undertaking Medicaid eligibility redetermination, estimating that hundreds of thousands of people could eventually lose their coverage. 

“The data indicate that we may already be seeing the effects of disenrollment materialize with patients less likely to seek out the care they need and a continued rise in bad debt and charity care,” says Swanson.

Despite a decline in hospital volumes during May, with reductions in inpatient and outpatient visits, the rise in charity care and debt persisted. This observation further strengthens the belief that hospitals are indeed grappling with an increasing number of patients lacking any form of insurance coverage. 

In April, inpatient and outpatient revenues experienced a 4% drop compared to March, emphasizing the financial strain hospitals face in the wake of these circumstances.

Hospitals also struggled with their finances in April, as the median operating margin stood at 0%, a slight improvement from March's -0.3%. 

The report highlights that health systems are burdened by escalating labor expenses, with labor expense per adjusted discharge increasing by 3% in April compared to March. Additionally, hospitals observed a decline in surgical procedures, as operating room minutes dropped by 8% in April compared to the previous month. Emergency department visits also experienced a slight decrease of 1% in April, while the average length of patient stays rose by 1% during the same period.

While there was a slight reduction in the costs of supplies in April, total expenses still dipped by 1% from March to April. However, operating revenues suffered a more significant decline, falling by 5% in April compared to March.

According to the projections by Kaufman Hall, hospitals are likely to continue facing tight operating margins in the foreseeable future. As a result, hospital and health system leaders are urged to proactively address this financial reality and take necessary measures to ensure long-term sustainability.

“Hospital and health system leaders must figure out how to navigate the new financial reality and begin to take action,” Swanson said in a statement. “In the face of operating margins that may never fully recover and inflated expenses, developing and executing a strategic path forward to a future that is financially sustainable is crucial.”

The hospital report, which is released monthly, draws data from more than 900 hospitals provided by Syntellis Performance Solutions.