Bad debt and charity care expenses climbing, expected to go even higher

Patients are already showing signs that it is getting more difficult for them to pay their hospital bills, even before the coming major funding cuts expected to take place in 2027.

A recent signal came in the form of Kaufman Hall’s National Flash Report, which is based on June data, indicating that bad debt and charity care together are growing in absolute and nominal terms.

The consultant’s results show that bad debt and charity care per calendar day were up 14% in June of this year when compared with June of 2025. And bad debt and charity care as a percentage of gross revenue in the same period rose 3%.

“There are a lot of things that could have contributed to this with a lot of insurance coverage disruptions [occurring] from the end of the public health emergency … we know that a lot of people lost health insurance,” said Tatiane Santos, PhD, MPH, an assistant professor at Tulane University in New Orleans. “I think that this is highly likely to impact hospital uncompensated care.”

Erik Swanson, managing director with Kaufman Hall, said that even though bad debt totals tend to be higher than the charity care component, most of the growth is coming from increased charity care provisions.

“What we’re seeing here (are) impacts for eroding payer mix, and much of this is being driven by population changes, patients getting older, switching over to governmental plans,” he said. “We expect the biggest impacts to take hold next year,” Swanson said.

Hospital finance execs can take steps to try to reduce the hit they will be taking from the changes to Medicaid and other related programs, but there are limits to how much lost revenue can be made up.

Strategies to use

Todd Nelson, director of healthcare policy & mission alignment for HFMA, outlined the steps hospital executives can take.

“First thing they need to do is make sure that anyone who’s eligible for coverage or could be eligible for coverage is getting that coverage,” Nelson said. They also should think about strategies to assist people in applying for coverage, “things they’ve always done.”

That means adopting strategies such as helping them get onto a marketplace plan, transitioning membership from a work-provided plan into a COBRA plan, or assisting them with getting Medicaid coverage, all of which need to be done in a legally compliant way.

Nelson noted that finance people are hoping to get five or 10 cents on the dollar when pursuing payment for uninsured patients.

“Although it may not cover costs, it’s better than getting zero,” he said.

In all likelihood, if the increases in bad debt and charity care is extreme, those strategies may not be enough.

“You start pulling all the other financial levers, if it’s a 5% hit to your bottom line, let’s say, then you need to find 5% in other places. If that is supplies, if that’s drug costs, if that’s reducing labor expense, whatever it is to make up for that,” Nelson said

And in some cases, organizations will have to decide to pull back on some unprofitable service lines that have been subsidized a long time, he said.

“They can’t afford to subsidize everything,” Nelson said.”

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