Texas hospitals brace for pandemic to send charity-care costs even higher

It’s not easy being a hospital in Texas, the state with the unwelcome distinction of having the most hospital closures and highest percentage of uninsured residents.

The economic reality of the Lone Star State puts many Texas hospitals in the difficult position of having to provide more free or discounted care than those in other states. A Modern Healthcare analysis found that Texas hospitals reported on average the third-highest charity-care spending ratios as a percentage of total expenses in 2018, behind Florida and Virginia. Texas’ ratio was 4.5% in 2018, up from 3.3% in 2017. Nationwide, hospitals averaged 2.2% of their expenses on charity care in 2018, according to the analysis of Medicare cost reports.

There are reasons to believe the COVID-19 outbreak sweeping the country will force hospitals to spend even more on charity care, as patients who’ve lost their jobs and health insurance fall ill. That’s a major concern for Texas hospitals—which are already significantly challenged by the state’s 17.7% uninsured rate, said John Hawkins, senior vice president of advocacy and public policy for the Texas Hospital Association.

“When you add that onto a potential medical and economic crisis … it really looks to be a challenging situation going forward,” he said.

Uvalde Memorial Hospital, about 90 miles west of San Antonio, already has one of the highest charity-care ratios in the state. In recent years, the 25-bed critical-access hospital has spent 15% to 17% of its revenue—how it measures charity care—more than triple the state average.

About 23% of Uvalde County residents are considered to be living in poverty, according to 2018 Census estimates. The uninsured rate is 22.5% for people under 65.

Valerie Lopez, Uvalde Memorial’s chief financial officer, said testing and treatment for COVID-19 may push the hospital’s charity-care spending even higher.

“We are having our staff all dressed up” in personal protective equipment, she said. “We are operating in a much larger area from inside to outside, getting supplies and things like that. I think the resources are probably expanded. But it’s yet to tell if the reimbursement will follow with that.”

Many hospitals report similar concerns. They’ll undoubtedly miss out on revenue—at least temporarily—from deferring lucrative elective procedures amid the outbreak. At the same time, they’re spending more on supplies and staffing, and it’s unclear whether—and if so, how much—those patients will be able to pay.

Uvalde Memorial is operating a drive-up COVID-19 test site, but is using discretion with respect to whether it bills those patients. The patients are given sign-in forms to register and provide payment information. The hospital can assess a low-level charge for the service, but does not do so in the case of self-pay patients who are sick, Lopez said. “How far can you go in trying to charge someone when they’re out in their car?” she said.

Multiple factors drive the high charity-care spending in Texas. The biggest, unsurprisingly, is the high uninsured rate, which was exacerbated by lawmakers’ decision not to expand Medicaid under the Affordable Care Act. Nearly 140 studies conducted since 2014 have found the ACA’s Medicaid expansion improved insurance coverage, according to a Kaiser Family Foundation report. Another 115 studies found it improved healthcare access and utilization.

There’s also a less obvious reason for the high charity-care spending: Texas’ high number of small businesses, said Hawkins, of the Texas Hospital Association. “Small businesses typically struggle to provide insurance to employees or they provide it at a level where cost-sharing is pretty high,” he said. “That factors in as well.”

Some of the hospitals that manage to make it work do so using consolidation, Hawkins said. They use their large geographic footprint to cross-subsidize different areas of their markets so that if one hospital is losing money, others make up for it. That appears to be the case for health systems like St. Louis-based Ascension, which has a handful of hospitals in Texas with high charity-care spending ratios. Ascension, which reported a narrow 1.6% operating margin in 2019, did not comment for this article.

Similarly, even as many of Christus Health’s Texas hospitals showed high charity-care spending in 2018, the Irving, Texas-based system managed to generate a 3.8% operating margin that year. Christus’ margin shrank to 1.9% in 2019.

Christus spent $328.4 million on charity care systemwide in its fiscal 2019, or 6% of total expenses, which is higher than many of its peers. That’s up from about 5% of expenses in fiscal 2018. The health system declined to comment for this article.

Harris Health System’s charity-care ratio is the highest in the state: about 41% of expenses in 2018. The two-hospital system in Houston spent about $600 million on charity care in 2018 out of about $1.5 billion in total expenses, according to its Medicare cost report from that year.

Harris is a government-owned system that primarily serves low-income, vulnerable patients, spokesman Byran McLeod said.

It receives property tax revenue that more than offsets its charity-care expenses, he said.

McLeod said he expects Harris’ charity-care spending to increase further with COVID-19 and the elimination of the ACA’s tax penalty for not having health insurance.

“It’s going to reverse course a little bit,” he said, “especially in a time like now when it seems like the economy may be sputtering a little bit.”

In some cases, high charity-care expenses are among the conditions that force Texas hospitals to close their doors.

Chillicothe (Texas) Hospital reported a 26% charity-care spending ratio in 2018, one of the highest in the state, before closing last year. The hospital’s cost report data show a 33% operating loss margin in 2018. Census data show 17% of that county’s population was in poverty and nearly 27% of residents were uninsured in 2018.

The Texas Hospital Association has been active in the conversations around the federal government’s COVID-19 economic relief package. Since the state Legislature meets every other year, Hawkins said the focus must be on federal support. Part of the federal relief may need to be simply a pool of money for uncompensated care, he said.

Several of Altamonte Springs, Fla.-based AdventHealth’s hospitals in Texas show high charity-care spending ratios. Michael Griffin, vice president of advocacy and public policy, said in a statement that the not-for-profit health system expects COVID-19 to further increase those ratios.

The pandemic is already putting people out of work and causing them to lose health insurance. Even when unemployment is low, hard-working people still struggle to meet expenses, including doctor bills and health insurance, Griffin said.

“It appears that this pandemic will only exacerbate those unfortunate circumstances for many, especially in the short term,” he said.

Despite its high charity-care spending, Uvalde Memorial boasted an enviable 6.2% operating margin and $18.6 million in profit in its fiscal 2018.

Lopez, who’s been the hospital’s CFO for 22 years, said that’s because of the wide array of services it performs relative to other critical-access hospitals, like scans, wound care and other outpatient services. She said the hospital also has a good revenue-cycle management system with low denials and aggressive appeals when denials do happen. Salaries, the hospital’s largest expense, are regularly flexed as needed.

Even in the face of a challenge as formidable as COVID-19, Lopez was optimistic.

“There have been so many times where it looks like something is going to be hard to go through, and maybe it was, but as a small, rural hospital, we’ve always come through it, made adjustments and learned,” she said. “It’s a continuous thing here.”