Recent announcement of a financial loss by Jersey Shore Hospital has included statements to the effect natural gas development could be a factor in bad debt increases that caused the loss. Comparison with other hospitals, however, suggests there may be other more important factors.

A story appeared recently in the Williamsport Sun-Gazette regarding the impact of natural gas workers without insurance on the economics of the Jersey Shore Hospital.  It suggested uninsured workers employed by gas company sub-contractors were leaving the hospital with unpaid bills and had contributed to a financial loss by the institution.  This could be a real problem and certainly demands more study, but there’s also evidence a nocebo effect may be in play.

A nocebo effect is, from a practical perspective, the opposite of a placebo effect.  It is a negative reaction or response based only on a subject’s pessimistic belief and expectation something will produce negative consequences even though there is no basis for such belief or expectation.  It is very clear Jersey Shore Hospital has experienced a big uptick in uncompensated care and bad debt.  It is not clear, from the financial data alone, this trend is unusual or related to natural gas development, although the hospital administration may well have other data supporting its explanation.  It’s also possible there are a variety of factors and natural gas is just the easiest one on which to blame things due to preconceived ideas and perceptions.

Financial data for 10 rural hospitals, five each in areas with and without significant Marcellus Shale development activity, indicate rising bad debts are common to both and Jersey Shore Hospital’s experience cannot automatically be assumed to relate to natural gas development, although it could be a factor, just as any new construction or development activity might be.

I served on the board of directors of the Wayne Memorial Health System in Honesdale between 1989 and 2001, the last five years as chair.  This experience, while hardly serving to qualify me as an expert, did provide some familiarity with the world of health acre accounting.  It’s a complicated world where there are not only bad debts but “adjustments for uncompensated care,” under different programs.  Let’s just say it’s complicated.  Still, there are some standard ways of reporting hospital financial data, particularly on 990 tax returns that non-profits use to report to the IRS.

When I read the Sun-Gazette story, it made me wonder, based on past experience, whether there might be additional factors and a nocebo effect involved.  I downloaded the 990 returns for 10 different rural Pennsylvania hospitals for the years 2008-2010 to see what patterns might exist (2011 data is generally not yet available).  I chose five hospitals from areas with natural gas development, including not only Jersey Shore Hospital, but also Barnes-Kasson (Susquehanna), Endless Mountains Health (Montrose), Soldiers & Sailors (Wellsboro) and Memorial Hospital of Towanda.  I balanced these selections with five from counties little or no Marcellus Shale activity, including Evangelical Community (Lewisburg), Gnaden Huetten (Lehighton), Lewistown, Palmerton and Wayne Memorial (Honesdale).

I looked at some very simple criteria; bad debt compared to total expenses.  This is what I found:

What the data illustrates is that hospitals in areas with significant natural gas development (Bradford, Lycoming, Susquehanna and Tioga Counties) grew from an average bad debt ratio of 5.93% in 2008 to 7.84% in 2010.  This represented a 32.23% proportional increase in the ratio.  The five hospitals from areas without significant natural gas development (Carbon, Mifflin, Union and Wayne Counties) started out lower (an average of 4.77% in 2008) and ended up somewhat lower as well (an average of 6.35%), but the proportional increase in bad debts was 33.19%, slightly above the areas with development activity.  The patterns on a hospital by hospital basis for the 10 selected hospitals are depicted in the chart below:

Notice there were two hospitals in both groups with bad debt percentages higher than Jersey Shore.  Moreover, one hospital in both groups saw a decline in 2010, indicating Jersey Shore Hospital was more or less in the middle of the pack in terms of bad debt ratios.  It had, in fact, the sixth highest ratio in 2008, the seventh highest in 2009 and the fifth highest in 2010, out of 10 hospitals.  It had the fourth highest rate of increase between 2008 and 2010 at 38.2%, but Palmertown Hospital in Carbon County, which was the closest in financial size to Jersey Shore in 2010, and is nowhere near any natural gas development, had a 38.3% gain.

What all this tells us is not that natural gas development might not be a factor, but that there are many other factors as well, and placing the blame on it alone may be the nocebo effect at work.  A recent article in the Pittsburgh Post-Gazette, for example, noted the following (emphasis added):

Bad debt is money owed to a company that is eventually written off as a loss because the bill hasn’t been — or can’t be — collected. For a hospital, bad debt generally takes the form of care that has been provided to a patient, but not paid for within 120 days.

At hospitals across the country, overdue patient invoices are increasingly being converted to the bad debt column. A year ago, the Cleveland Clinic reported that its spending on bad debt had increased 49 percent, to $86 million, for the fiscal year.

One driver behind the increase, related partly to the economy as well as the ever-increasing cost of health care, is the growing adoption of higher deductible, higher co-pay health plans. When a patient owes more to the hospital out-of-pocket, there’s a better chance he won’t make that payment and a better chance the hospital eventually eats the cost.

The same article also states:

Both types of “uncompensated care” — charity care and uncollected bad debt — have been increasing regionally, according to the Hospital Council, collectively growing 30 percent since fiscal year 2009 among member hospitals

Given all this, there is a lot less to the Jersey Shore Hospital story than met the eye in the Sun-Gazette article. Uninsured workers employed by sub-contractors may be a factor but the economy, and changing nature of health care insurance policies are just as likely to be the cause, based on what’s happening nationally and regionally.

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