The push toward "more affordable" health care coverage could wind up costing hospital operators plenty.

Quite simply, affordable health plans tend to cover less. They generally kick in only after the patient has satisfied a high deductible and can leave the patient responsible for a portion of the bill that remains. Thus, they wind up making hospitals collect less from insurers and more from huge crowds of individuals who, quite often, fail to pay.

"We're moving away from the concept where hospitals deal with maybe 25 major payers that cover 85% to 95% of the patient base," says Peter Young, a business consultant at HealthCare Strategic Issues. "Now, hospitals face point-of-service collections for nearly every patient they see."

And they don't necessarily collect that much. Based on recent hospital reports, Young pegs the collection rate on high deductibles and co-pays at just 20 cents on the dollar.

Already, hospital operators -- including industry leader

HCA

(HCA) - Get Report

-- have started blaming lower-paying managed care plans for a fresh hit to revenue. But the pain could get a lot worse. In a recent survey, Corporate America ranked the cost of health care as its No. 1 concern. To address their worries, some believe, companies will continue to favor skinnier health benefits that require workers to pick up bigger chunks of the tab.

Moreover, the strategy already enjoys loud support from the nation's own CEO. President Bush is promoting high-deductible plans, when linked to health savings accounts, as a way to insure more Americans and -- just as importantly -- bring runaway health care costs under control.

Even providers of traditional health insurance, such as

Aetna

(AET)

and

UnitedHealth

(UNH) - Get Report

, expect big growth in their new, so-called consumer-driven plans. But some are banking on an outright explosion. John Goodman, president of the National Center for Policy Analysis, believes that most people -- rather than today's tiny minority -- will soon rely on consumer-driven plans for their health care coverage.

Under the plans, consumers invest money tax-free for any future out-of-pocket health expenses. If they spend just some -- or even none -- of the money, their account keeps growing year after year. As a result, many believe, consumers will shop for affordable health care and help control prices in the process.

Goodman says consumers have already done just that with cosmetic surgery. He says the price tag for such surgeries, paid entirely by consumers, has remained stable even while that for surgeries covered by insurance has skyrocketed.

Looking ahead, Goodman believes that hospitals -- which currently lack transparent pricing -- must adapt in order to compete in a very different world.

"Hospitals have been caught unprepared," Goodman told

TheStreet.com

last week. "But everybody's going to get prepared. ... The medical world has already shown that it can change very quickly."

Side Effects

Early on, however, certain hospitals -- like the high-priced facilities operated by

Tenet

(THC) - Get Report

-- could lose business.

"The first thing that could happen," says Fulcrum analyst Sheryl Skolnick, "is a reassignment of market share from high-cost to low-cost providers."

Secondly, she says, hospitals could face higher collection costs for the patients they do attract. Third, she adds, they may never see patients show up for some services at all.

"If people are really only covered for major illnesses -- and everything else comes out of pocket -- will we see as much outpatient diagnostic testing? Will there be as many full-body scans?" she asks. "I kind of doubt it."

For hospitals, therefore, the projected industry shift looks like a prescription for more pain. Hospitals cut prices or lose business. They spend more on collecting less. And they probably lose some lucrative outpatient business regardless.

Meanwhile, their bad debt problem -- fueled by those without adequate health care coverage -- could very well go uncured.

Mixed Prognosis

To be fair, Goodman foresees some relief.

During a seven-year pilot program, he says, more than 40% of customers who signed up for health savings accounts previously carried no insurance at all. He says many of those customers saw far more value in HSAs than in traditional health insurance.

"This is attractive to people who are healthy and uninsured by choice," Goodman says.

But another study, conducted by the Henry J. Kaiser Family Foundation, suggests the need for a more potent cure. All told, the study estimates, Bush's HSA policies -- which call for additional tax breaks -- would increase the number of Americans with health care coverage by only 1.3 million. Some 45 million Americans live without health insurance now.

Moreover, the study suggests that Bush's plan could trigger some unpleasant side effects by eliminating current employer-based coverage for 2.6 million Americans.

"By offering tax subsidies for non-group health insurance," the Kaiser report explains, "the policies would reduce the preference under current tax law for employer-based coverage over non-group insurance, with the likely result that fewer employers would offer health benefits to their employees."

Hospitals, already burdened by a spike in uncompensated care, worry they will keep footing the bill. HCA, the largest for-profit player, says it does see value in new insurance products that can provide coverage to those without. But it also worries whether the high deductibles and co-payments associated with such plans will actually get paid.

Going forward, the company seeks a "broad-based solution" -- involving multiple parties -- to the nation's huge uninsured problem.

"For too long, hospitals have borne the brunt of it," says HCA spokesman Jeff Prescott. "Somewhere, there has to be a change."

Second Opinion

In the meantime, HCA has already sought out a second opinion on its own situation.

The company recently hired McKenzie to evaluate its collection of receivables from both insurance companies and individual patients. On a positive note, McKenzie deemed HCA's collection of insurance payments quite healthy.

"They have not seen anything in the industry -- and quite frankly outside the industry -- with this type of portfolio that exceeds

that performance," Beverly Wallace, the president of HCA's financial services division, told analysts in October.

But McKenzie diagnosed problems with HCA's collections from patients.

"They said it was probably best in class for the industry but not world-class, based on other financial institutions," Wallace said. "We always feel there is room for improvement, and we are very focused on that."

Indeed, HCA has already taken steps to address the problem. As a result, the company has increased its point-of-service collections by more than 50% over the past year.

Still, Young foresees the need for even more dramatic improvement. He says the industry, as a whole, must eventually adopt collection strategies more like those employed by banks and credit card companies right now.

"HCA is closer than anybody else," Young says. "But hospitals are still a long way from that."

Prescription for Change

Goodman offers a similar view.

Not only must hospitals become "savvy sellers" of their services, he says. But they also must find a more efficient way to collect payments from their customers.

He points to special debit cards, providing access to health savings accounts, as a possible advancement. Credit cards specifically designed for medical services have also begun surfacing in the health care industry.

Others foresee major changes as well. For example, PricewaterhouseCoopers has predicted that President Bush's proposed "ownership society" -- converting the U.S. into an "HSA nation" -- could, in fact, materialize.

If so, hospitals face both good news and bad. On a bright note, PricewaterhouseCooper projects, hospitals could see between 2 million and 8 million patients gain health insurance. In addition, it adds, those with "package pricing or measurable quality" could win business away from those without.

Still, PricewaterhouseCoopers foresees an "extremely rocky" transition period that could very well bring more pain to the ailing hospital industry.

"President Bush's combination of tax credits, deductions and regulatory changes could increase the number of Americans with insurance, but it will put more responsibility on individuals to manage that spending," the firm states. "High deductibles mean more collections for providers.

So bad debt could continue to soar."