Employee Share of Prescription Drug Cost to Pressure Bad Debt Expense

Consumers enrolled in employer sponsored health care plans are picking up a greater share of their  own prescription drug costs, a trend health care industry experts say is unsustainable and will likely contribute to more medical bad debt expense.

According to a survey by ACS subsidiary Buck Consultants, 76 percent of responding employers who offered prescription drug coverage as part of their health plan said they use employee cost sharing to help pay for it and manage utilization.  Last year, 51 percent of employers responded similarly. The most common share of the expense employees are being asked to meet ranges from 11 to 20 percent.

“This year, plan sponsors are clearly focused on controlling cost in response to budget cuts,” said Michael Jacobs, a principal with Buck Consultants.

Nearly all (99 percent) of the survey respondents said they offer prescription drug coverage as part of their health care programs to active employees.  Employers say they do so to help maintain the health of their employees and for competitive business reasons.

But prescription drug coverage is expensive for some. Thirty percent of the largest group of respondents said prescription drug benefits represents 11 percent to 15 percent of their total health care costs.  Although that share is less than the 16 to 20 percent of total health care cost the group paid last year – due in part to expiring drug patents - industry experts say consumers aren’t likely to have an easier time paying their bills.

Lauren Coste, a corporate finance director for Fitch Ratings covering For-Profit Health Care Facilities, said bad debt expense as a percentage of revenues at for-profit hospitals increased again in the second quarter of 2009, though for-profit hospitals have been able to offset some of that increase through strong cost management.  Nonetheless, Coste expects bad debt expense to continue to increase through 2009 as people have less cash to pay bills.  

“Debt level matters, but the ability to pay matters more,” said Coste.  “If people have less cash and income to pay their debts, that’s even worse.”

Kaulkin Ginsberg Analyst Michael Klozotsky agreed.  With unemployment near record highs and credit limits shrinking, consumers will have less available cash, he said.  Though more consumers have forgone prescription drug needs during this recession, when they do fill prescriptions co-pays and deductibles generally are collected upfront, leaving many consumers with less cash.  

To help creditors get by, collection agencies will have to be prepared to handle more volume and possibility a shift in the types of accounts they generally handle, Klozotsky said.

“Rather than seeing delinquent co-pays, agencies might see more back end, billed services,” he said.

Klozotsky said agencies should collaborate with clients about the best strategy for handling accounts, such as determining which accounts may be charity care eligible.  Agencies also should agree on strategies for contacting patients earlier than usual with a “gentle reminder” that their bill is due.

“While there may be a risk (to outsourcing an account earlier), figuring out how to approach an account and getting a patient to pay is going to be a benefit,” he said.