The Trouble with Uncompensated Hospital Care
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《新英格兰医药杂志》
An implicit assumption of the U.S. health care system is that poor, uninsured persons who become ill can obtain free or discounted care. Although many individual physicians provide such services, uncompensated hospital care represents our safety net of last resort. Uncompensated care is defined as the sum of free care, for which the hospital does not expect payment, and bad debt, for which it attempts to collect payment. As free care and bad debt are currently reported, it is difficult to distinguish between them, but uncompensated care is not free. A small portion is covered by in-kind donations, and the rest is paid for by parties other than patients or their public or private insurance.1 Although many believe that relying on charity for health care is inferior to having health insurance, it is worth asking whether the charity approach works for the patients without causing them undue hardship and whether it distributes the burden equitably among providers.
Because market competition has increased over the past decade, hospitals today have a much more limited ability to "cost-shift" — to charge private payers more than the cost of treating their insured patients in order to help cover the costs of treating the uninsured and providing other socially beneficial services. Countering this trend to some extent, Medicare has been increasing its payments to hospitals that treat large numbers of indigent patients (known as disproportionate-share hospital, or DSH, funds), but there is concern that the distribution formula still fails to target accurately the hospitals that serve the most uninsured patients.
Meanwhile, the need for free or reduced-cost care may be increasing. Between 1995 and 2003, the number of nonelderly uninsured persons grew by more than 7 million, and the proportion of the nonelderly population that was uninsured increased from 16.1 percent to 17.7 percent (see graph). At the same time, insurers and employers are shifting more costs to consumers, increasing the number of underinsured families that, faced with a spell of illness, might have to spend a large percentage of their income on out-of-pocket medical expenses.2,3 According to the American Hospital Association (AHA), hospitals spent about $25 billion on uncompensated care last year. Whether this amount is appropriate is difficult to say, but the trends reveal signs of trouble. Given the increasing numbers of uninsured and underinsured Americans, one might expect a parallel increase in the level of spending on uncompensated care. In fact, the opposite appears to be true. Although uncompensated care held steady at about 6 percent of total hospital expenses during the 1990s, the proportion dropped to 5.6 percent in 2001 and 5.5 percent in 2003 (see graph). The reason for this reduction is unclear. One possibility, that expenses for insured patients are increasing more rapidly than those for uninsured patients, raises other questions of equity. Alternatively, some hospitals may be reducing the services provided to indigent patients.
Trends in the Percentage of Nonelderly Americans Who Are Uninsured and the Percentage of Total Hospital Expenses That Are Uncompensated.
Data on uncompensated care are from the American Hospital Association, and data on the uninsured are from the Employee Benefit Research Institute.
Moreover, uncompensated care is unevenly distributed. The levels are higher in major teaching hospitals and public hospitals (even after adjustment for public subsidies) and vary from state to state.4 Different hospitals have different missions, so it is difficult to know what the optimal distribution would be. But here again, there are troubling signs. One study showed that uncompensated care is becoming concentrated in fewer hospitals.5 This trend poses problems for overburdened hospitals, which may respond by making further cuts in services to poor patients, and it may eventually lead to a two-class system of care.
Understanding what happens when poor patients are confronted with large hospital bills offers another perspective on uncompensated care. About five years ago, a series of articles in the Wall Street Journal chronicled what appeared to be the overly aggressive billing practices of nonprofit hospitals. Soon afterward, the advocacy group Community Catalyst reported that many hospitals rarely publicized free or discounted care and were not forthcoming in offering it to indigent patients. Then, in November 2003, students from a legal clinic at Yale Law School spearheaded a lawsuit against Yale–New Haven Hospital, arguing that the hospital's debt-collection tactics were draconian and included such practices as garnisheeing wages and placing liens or foreclosing on patients' homes.
The AHA responded that Medicare rules did not permit discounts to uninsured patients — or that, at least, the regulations were confusing. The AHA requested clarification from Medicare, distributed guidelines for billing and collection procedures, and asked its members to sign a pledge to review their policies. In February 2004, Health and Human Services Secretary Tommy Thompson responded that Medicare rules do not prohibit discounts, and in June 2004, after a year of investigations, the House Energy and Commerce Committee began a series of hearings on hospitals' charging practices and tax-exempt status.
Certainly the most contentious development began last summer, when 13 related class-action lawsuits were brought against nonprofit hospitals in seven states on behalf of uninsured patients. The lawsuits are being coordinated by the law firm of Richard Scruggs, the group that won the major tobacco litigation several years ago. In March 2004, Scruggs was approached by Dr. Charles Bagnado, a Mississippi surgeon, and Charles Rehberg, the financial administrator of Bagnado's practice. After being blocked from opening an outpatient surgery center across the street from the hospital where Bagnado worked, the two began investigating the hospital's finances and found evidence of abusive billing practices. The issue has since become something of a crusade for all three men. In addition to citing aggressive billing practices similar to those at Yale–New Haven Hospital, Scruggs claims that some low-income, uninsured patients are being overcharged for services. Rather than being billed at the same discounted rate as most insured patients, some are billed at the "sticker price," which can be much higher than the actual cost of care.
Why would hospitals continue trying to collect from patients who obviously cannot afford to pay, rather than writing the expenses off as free care? According to Scruggs, a number of current and former hospital financial officers have told him that the most common reason is to discourage indigent patients from returning to the hospital. Since last fall, Scruggs has negotiated a settlement with one hospital, although a similar case brought by other lawyers in Pennsylvania was dismissed. Whatever the eventual outcome of the lawsuits, the action has inspired many hospitals to review and formalize their financial-assistance policies.
Ultimately, uncompensated hospital care is a weak substitute for insurance and a poor method of distributing costs among providers. Even hospitals whose mission includes treating indigent patients are reluctant to make the process too easy or too public for fear of becoming magnets for uninsured patients. Relying on uncompensated care is also uneconomical, since it encourages uninsured, poor patients to seek care in emergency rooms. Because such care detracts from the bottom line, it places hospitals that serve many uninsured patients at a disadvantage in the marketplace. The challenge, then, is to encourage hospitals to act charitably without harming their ability to function competitively.
One option is to reduce the demand for uncompensated care by expanding coverage — an approach that has met with some success in Minnesota and Maine. But universal health coverage on a national scale is unlikely to be embraced in the near future. Incremental reforms such as the creation of health savings accounts (HSAs) probably won't have a large effect on uncompensated care, either, because poor people tend not to take advantage of such options and because well-insured people might switch to policies with high deductibles and then find that they cannot pay their bills.
Short of universal coverage, however, a number of policy goals may well be worth pursuing. First, transparency in pricing, financial records, and hospital policies could lead to more consistent practices for reporting and awarding free care and bad debt and to greater accountability. It would be helpful if hospitals distinguished more clearly between the two and if the AHA made hospitals' data available for monitoring purposes. The financial-assistance and collection policies of hospitals could be formalized and made public and could be better coordinated with public programs such as Medicaid. Several groups — including Community Catalyst and the California Hospital Association — have proposed models that appear to balance the rights and needs of low-income patients with the realities of hospital survival.
Second, low-income, uninsured patients ought not to be asked to pay inflated prices. Third, uncompensated care has to be financed somehow, and charitable contributions are generally not sufficient, in part because they are often earmarked for other purposes. Uncompensated-care pools do a reasonably good job of leveling the playing field for hospitals that provide large amounts of free care, but there is some danger that they will be used merely to shore up failing or inefficient hospitals. In addition, programs designed to expand access to specialists who work at hospitals might be cost-effective if they prevented unnecessary hospitalizations. At the federal level, perhaps Medicare should consider changes to the DSH funding formula to ensure that funds reach hospitals with large uninsured populations.
Most hospitals and doctors are surely trying to do the right thing. But serving as a safety net while still functioning as a business is a challenge. Until the country decides to provide health coverage for all residents, the problem of uncompensated care will not go away.
Source Information
Dr. Weissman is an associate professor of medicine and a lecturer on health care policy at the Massachusetts General Hospital/Partners Institute for Health Policy and Harvard Medical School, Boston.
References
Hadley J, Holahan J. Who pays and how much? The cost of caring for the uninsured. Washington, D.C.: Kaiser Commission on Medicaid and the Uninsured, 2003.
Gabel J, Claxton G, Holve E, et al. Health benefits in 2003: premiums reach thirteen-year high as employers adopt new forms of cost sharing. Health Aff (Millwood) 2003;22:117-126.
Tu HT. Rising health costs, medical debt and chronic conditions. Issue brief no. 88. Washington, D.C.: Center for Studying Health System Change, 2004.
Overview of uncompensated care: an audio-visual conference event sponsored by the Agency for Healthcare Research and Quality. Washington, D.C.: AHRQ/MedPAC, 2002.
Weissman JS, Gaskin DJ, Reuter J. Hospitals' care of uninsured patients during the 1990s: the relation of teaching status and managed care to changes in market share and market concentration. Inquiry 2003;40:84-93.(Joel S. Weissman, Ph.D.)
Because market competition has increased over the past decade, hospitals today have a much more limited ability to "cost-shift" — to charge private payers more than the cost of treating their insured patients in order to help cover the costs of treating the uninsured and providing other socially beneficial services. Countering this trend to some extent, Medicare has been increasing its payments to hospitals that treat large numbers of indigent patients (known as disproportionate-share hospital, or DSH, funds), but there is concern that the distribution formula still fails to target accurately the hospitals that serve the most uninsured patients.
Meanwhile, the need for free or reduced-cost care may be increasing. Between 1995 and 2003, the number of nonelderly uninsured persons grew by more than 7 million, and the proportion of the nonelderly population that was uninsured increased from 16.1 percent to 17.7 percent (see graph). At the same time, insurers and employers are shifting more costs to consumers, increasing the number of underinsured families that, faced with a spell of illness, might have to spend a large percentage of their income on out-of-pocket medical expenses.2,3 According to the American Hospital Association (AHA), hospitals spent about $25 billion on uncompensated care last year. Whether this amount is appropriate is difficult to say, but the trends reveal signs of trouble. Given the increasing numbers of uninsured and underinsured Americans, one might expect a parallel increase in the level of spending on uncompensated care. In fact, the opposite appears to be true. Although uncompensated care held steady at about 6 percent of total hospital expenses during the 1990s, the proportion dropped to 5.6 percent in 2001 and 5.5 percent in 2003 (see graph). The reason for this reduction is unclear. One possibility, that expenses for insured patients are increasing more rapidly than those for uninsured patients, raises other questions of equity. Alternatively, some hospitals may be reducing the services provided to indigent patients.
Trends in the Percentage of Nonelderly Americans Who Are Uninsured and the Percentage of Total Hospital Expenses That Are Uncompensated.
Data on uncompensated care are from the American Hospital Association, and data on the uninsured are from the Employee Benefit Research Institute.
Moreover, uncompensated care is unevenly distributed. The levels are higher in major teaching hospitals and public hospitals (even after adjustment for public subsidies) and vary from state to state.4 Different hospitals have different missions, so it is difficult to know what the optimal distribution would be. But here again, there are troubling signs. One study showed that uncompensated care is becoming concentrated in fewer hospitals.5 This trend poses problems for overburdened hospitals, which may respond by making further cuts in services to poor patients, and it may eventually lead to a two-class system of care.
Understanding what happens when poor patients are confronted with large hospital bills offers another perspective on uncompensated care. About five years ago, a series of articles in the Wall Street Journal chronicled what appeared to be the overly aggressive billing practices of nonprofit hospitals. Soon afterward, the advocacy group Community Catalyst reported that many hospitals rarely publicized free or discounted care and were not forthcoming in offering it to indigent patients. Then, in November 2003, students from a legal clinic at Yale Law School spearheaded a lawsuit against Yale–New Haven Hospital, arguing that the hospital's debt-collection tactics were draconian and included such practices as garnisheeing wages and placing liens or foreclosing on patients' homes.
The AHA responded that Medicare rules did not permit discounts to uninsured patients — or that, at least, the regulations were confusing. The AHA requested clarification from Medicare, distributed guidelines for billing and collection procedures, and asked its members to sign a pledge to review their policies. In February 2004, Health and Human Services Secretary Tommy Thompson responded that Medicare rules do not prohibit discounts, and in June 2004, after a year of investigations, the House Energy and Commerce Committee began a series of hearings on hospitals' charging practices and tax-exempt status.
Certainly the most contentious development began last summer, when 13 related class-action lawsuits were brought against nonprofit hospitals in seven states on behalf of uninsured patients. The lawsuits are being coordinated by the law firm of Richard Scruggs, the group that won the major tobacco litigation several years ago. In March 2004, Scruggs was approached by Dr. Charles Bagnado, a Mississippi surgeon, and Charles Rehberg, the financial administrator of Bagnado's practice. After being blocked from opening an outpatient surgery center across the street from the hospital where Bagnado worked, the two began investigating the hospital's finances and found evidence of abusive billing practices. The issue has since become something of a crusade for all three men. In addition to citing aggressive billing practices similar to those at Yale–New Haven Hospital, Scruggs claims that some low-income, uninsured patients are being overcharged for services. Rather than being billed at the same discounted rate as most insured patients, some are billed at the "sticker price," which can be much higher than the actual cost of care.
Why would hospitals continue trying to collect from patients who obviously cannot afford to pay, rather than writing the expenses off as free care? According to Scruggs, a number of current and former hospital financial officers have told him that the most common reason is to discourage indigent patients from returning to the hospital. Since last fall, Scruggs has negotiated a settlement with one hospital, although a similar case brought by other lawyers in Pennsylvania was dismissed. Whatever the eventual outcome of the lawsuits, the action has inspired many hospitals to review and formalize their financial-assistance policies.
Ultimately, uncompensated hospital care is a weak substitute for insurance and a poor method of distributing costs among providers. Even hospitals whose mission includes treating indigent patients are reluctant to make the process too easy or too public for fear of becoming magnets for uninsured patients. Relying on uncompensated care is also uneconomical, since it encourages uninsured, poor patients to seek care in emergency rooms. Because such care detracts from the bottom line, it places hospitals that serve many uninsured patients at a disadvantage in the marketplace. The challenge, then, is to encourage hospitals to act charitably without harming their ability to function competitively.
One option is to reduce the demand for uncompensated care by expanding coverage — an approach that has met with some success in Minnesota and Maine. But universal health coverage on a national scale is unlikely to be embraced in the near future. Incremental reforms such as the creation of health savings accounts (HSAs) probably won't have a large effect on uncompensated care, either, because poor people tend not to take advantage of such options and because well-insured people might switch to policies with high deductibles and then find that they cannot pay their bills.
Short of universal coverage, however, a number of policy goals may well be worth pursuing. First, transparency in pricing, financial records, and hospital policies could lead to more consistent practices for reporting and awarding free care and bad debt and to greater accountability. It would be helpful if hospitals distinguished more clearly between the two and if the AHA made hospitals' data available for monitoring purposes. The financial-assistance and collection policies of hospitals could be formalized and made public and could be better coordinated with public programs such as Medicaid. Several groups — including Community Catalyst and the California Hospital Association — have proposed models that appear to balance the rights and needs of low-income patients with the realities of hospital survival.
Second, low-income, uninsured patients ought not to be asked to pay inflated prices. Third, uncompensated care has to be financed somehow, and charitable contributions are generally not sufficient, in part because they are often earmarked for other purposes. Uncompensated-care pools do a reasonably good job of leveling the playing field for hospitals that provide large amounts of free care, but there is some danger that they will be used merely to shore up failing or inefficient hospitals. In addition, programs designed to expand access to specialists who work at hospitals might be cost-effective if they prevented unnecessary hospitalizations. At the federal level, perhaps Medicare should consider changes to the DSH funding formula to ensure that funds reach hospitals with large uninsured populations.
Most hospitals and doctors are surely trying to do the right thing. But serving as a safety net while still functioning as a business is a challenge. Until the country decides to provide health coverage for all residents, the problem of uncompensated care will not go away.
Source Information
Dr. Weissman is an associate professor of medicine and a lecturer on health care policy at the Massachusetts General Hospital/Partners Institute for Health Policy and Harvard Medical School, Boston.
References
Hadley J, Holahan J. Who pays and how much? The cost of caring for the uninsured. Washington, D.C.: Kaiser Commission on Medicaid and the Uninsured, 2003.
Gabel J, Claxton G, Holve E, et al. Health benefits in 2003: premiums reach thirteen-year high as employers adopt new forms of cost sharing. Health Aff (Millwood) 2003;22:117-126.
Tu HT. Rising health costs, medical debt and chronic conditions. Issue brief no. 88. Washington, D.C.: Center for Studying Health System Change, 2004.
Overview of uncompensated care: an audio-visual conference event sponsored by the Agency for Healthcare Research and Quality. Washington, D.C.: AHRQ/MedPAC, 2002.
Weissman JS, Gaskin DJ, Reuter J. Hospitals' care of uninsured patients during the 1990s: the relation of teaching status and managed care to changes in market share and market concentration. Inquiry 2003;40:84-93.(Joel S. Weissman, Ph.D.)