The spike in uncompensated care that was expected last year as a result of the recession failed to materialize, according to new data.
Recession brings no surge in uncompensated care
An annual survey from the American Hospital Association shows U.S. community hospitals in 2008 provided $36.4 billion in uncompensated care, which includes both charity care for which the hospitals did not expect to receive payment and bad debt for which payers failed to cover their expenses.
The figure was up 7% from the year before. But since overall hospital expenses also grew by 7%, uncompensated care accounted for roughly the same proportion of hospitals' overall expenditures as the prior year—5.8% of all expenses. The amount of total hospital expenses devoted to uncompensated care industrywide has remained between 5% and 6% for about a decade.
The news comes just weeks after the AHA released financial statistics showing the hospital industry was still profitable in 2008, with profits of $17 billion on operating revenue of $648 billion, for an operating margin of 2.6% (Nov. 16, p. 8).
However, observers cautioned that widespread joblessness and rising poverty typically have a delayed impact on the healthcare system, because of severance packages and COBRA coverage. That means the effects of the recession might not become clear until the next survey of uncompensated care arrives this time next year.
Several hospital leaders said that their charity care and bad debt have indeed increased in 2009 as the long recession drags through a second year and threatens to depress personal and institutional finances well into 2010.
That was certainly true for hospitals in Michigan, the state that recorded the highest unemployment rate in the nation at 15.1%, according to data from the U.S. Bureau of Labor Statistics. Henry Ford Health System Chief Financial Officer James Connelly said uncompensated-care costs at the seven-hospital, Detroit-based system are on pace this year to exceed the 2008 total by as much as 10%. That would be a change from $160 million in 2008 to a projected $175 million in 2009, according to budget forecasts.
“Because of this delayed impact, and because of what that will be, most of us feel that while we may be bottoming out or beginning a slow growth (in the economy), I'm in the camp of people who believe that it will be a very slow growth for a number of years,” Connelly said.
Even in Minnesota, which had an unemployment rate about half as high as Michigan's, at 7.6%, hospitals are seeing increases in uncompensated care in 2009. St. Louis Park-based Park Nicollet Health Services, which owns one hospital and manages another under contract, has recorded a 53% increase in charity care and a 22% increase in overall uncompensated care during the first three quarters of 2009 compared with the same period last year.
Park Nicollet President David Abelson, who adds the title of CEO on Jan. 1 as part of a succession plan, said Minnesota is one of the states with high numbers of patients on high-deductible plans, which drives up bad debt costs because consumers tend not to pay as reliably as insurers.
Park Nicollet is also seeing a surge in the shift from commercial payers to government programs, which is driving up its shortfalls from government programs. Abelson said that for every 1% of its patients who switch to government programs, the system loses $5.6 million in revenue.
“As the population ages or becomes unemployed or underemployed, that drives the shift from commercial payers to government,” Abelson said. “This has been going on for a number of years. The business model in Minnesota is to shift the losses from government contracts to commercial payers. That's really the only way to stay in business in healthcare.”
Industry groups say the practice is widespread. The average American family of four pays an extra $1,788 per year for cost-shifting, according to a study from accounting firm Milliman, sponsored by the AHA, America's Health Insurance Plans, and two Blue Cross insurers.
The annual AHA survey on government-insurance reimbursement shortfalls found that Medicare paid about 91 cents for every $1 of care provided for those patients; the comparable figure for Medicaid was 89 cents for every $1 of care provided.
Both the government insurance shortfalls and the uncompensated-care figures are based on the AHA's estimates of the true cost of care, rather than the charges on patient bills, which include cost-shifting and variable contract prices, said Caroline Steinberg, vice president for trends analysis at the AHA. Since the true cost of care is indeterminate, actuaries estimate it by starting with the charge rates and then multiplying by a cost-to-charge ratio that is intended to estimate true cost by dividing total expenses by operating revenue.
In the future, hospital executives said they are concerned that reform proposals in Washington are going to increase the growth of government-insurance shortfalls faster than the decline in uncompensated care that is expected to occur when more patients get insurance.
“The uncompensated number will go down, but the contractual shortfalls will go up,” said Brian Keeley, president and CEO of five-hospital Baptist Health South Florida, Coral Gables. “I would hope that we can stay even, but if more people have insurance that do not have it now, we're going to see an increase on the insured side and a reduction, perhaps a disproportionate reduction, on the Medicare side.”
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