1 Hospital Pricing Behavior for the Uninsured: Are Safety-Net Hospitals Different? This study is funded in part by Robert Wood Johnson Foundation under the HCFO Program Katya Fonkych, MPhil Glenn Melnick, PhD RAND Corporation June 27, 2006

2 Background  Rapid increase in hospital charges (list prices) Charges per day doubled from 2000 to 2004 Charges per day doubled from 2000 to 2004  Growing billed charges were ignored: Managed care allowed for steep discounts Managed care allowed for steep discounts PPS fixed the real prices for government PPS fixed the real prices for government  Self-pay (SP) patients receive bills based on list prices (charges) and many are expected to pay them Media coverage Media coverage

3 Research Questions 1. Do hospitals collect higher proportion of charges from self-pay patients than from insured patients? 2. Do safety net hospitals give more or less of a discount for self pay patients compared to non- safety net hospitals? Which safety-net dimensions matter for pricing: Government subsidies for safety-net providers Government subsidies for safety-net providers Hospitals that treat the largest uninsured population Hospitals that treat the largest uninsured population Non-profit status Non-profit status

4 Data and Methods  Hospital data for descriptive and multivariate analyses California annual financial reports on acute-care hospitals: California annual financial reports on acute-care hospitals: Gross charges and net (received) revenue by payor classGross charges and net (received) revenue by payor class Non-comparable hospitals excluded: Non-comparable hospitals excluded: County, State, Psychiatric and Kaiser hospitals, hospitals with < 50 uninsured patientsCounty, State, Psychiatric and Kaiser hospitals, hospitals with < 50 uninsured patients  Key dependent variables Collection percentage by payor class, within a hospital: Difference in collection percentage bw self pay and insured ~ discount or relative price for SP patients, because: Gross charges are about the same for patients in same hospital regardless of their payor (we checked top 20 DRG category ) % Paid (payor)= Net Revenue (payor) / Gross Charges (payor) Δ Paid (com. insured) = %Paid (self-pay) - %Paid (com. insured)

5 Measurement of Self-Pay versus Low Income Uninsured Ideally we would like to identify low-income, uninsured, self pay patients, but our SP data may include: 1. International or out of state high-income patients 0.6% of self-paid come out of US, vs. 0.1% among all payors 0.6% of self-paid come out of US, vs. 0.1% among all payors 2. High income patients seeking elective procedures, not covered by their insurance Self-paid patients are mostly admitted through ER, unlike commercially insured (ER is unlikely to be elective): 70% vs 40% Self-paid patients are mostly admitted through ER, unlike commercially insured (ER is unlikely to be elective): 70% vs 40% 3. Misclassified auto accident patients, who pay their bill from auto insurance coverage However only 12% of all accidents are self-paid However only 12% of all accidents are self-paid 4. Insured patients whose charges are misclassified as SP initially or SP patients that are misclassified as insured

6 About One in 20 Patients Is Self-Pay (CA, 2004) 135 thousand 3.42 million 1.36 million All acute-care Californian hospitals, excluding psychiatric Adjusted days = inpatient days and outpatient care, weighted by their relative charges

7 By 2004 SP Patients Paid Less Than Insured But More Than Government % Paid = Net Revenue / Gross Charges in a given hospital (hospital-level, not patient-level)

8 Difference in Collection Rates BW Self Pay and Commercially Insured, 2004 Mean ΔPaid -5.4% 1/3 of hospitals that treat 1/3 of self-pays on average collect from them more than from their commercially insured patients

9 Dimensions of Safety Net: Disproportionate Share Hospitals  Hospitals that qualify for “Disproportionate Share” payment from Medicaid treat high share of low-income patients Whether or not qualify Whether or not qualify % revenue from DSH payments % revenue from DSH payments  In CA DSH hospitals must have > 25% of care provided for low-income patients, defined as indigent and Medical weighted towards Medical weighted towards Medical  In CA 29% of hospitals receive DSH payments (county excluded), account for only 25% of care for self-pay patients  Profit status is another dimension of safety net: Non-profit hospitals are supposed to provide indigent care to justify their non-profit status and fulfill their mission Non-profit hospitals are supposed to provide indigent care to justify their non-profit status and fulfill their mission

10 Dimensions of Safety Net: Hospitals with Most Self-Pay Patients  Defined Safety-Net hospitals for Self-Pay, as those that provide most access to care for uninsured (top 25% of adjusted days)  Top 25% of hospitals (82 hospitals) provide 70% of SP care  Only a third of top 25% hospitals (29 hospitals) are DSH => little overlap Safety Net for Self-pays

11 Safety-Net Hospitals Do Not Provide Greater Discounts for SP Patients AverageAcrossHospitalsNon-DSHDSHBottom 75% 75%Top25% Top 25% and DSH DSHFor-ProfitNon-Profit % Paid – self paid 35%32%34%35%34%32%35% % Paid - commercial 41%36%40%36%35%29%43% Δ Paid - commercial -5.9%-3.9%-5.8%-4.0%-1.4%3%-8% But non-profits do

12 Multivariate Model SN hospitals have different characteristics, which might be responsible for the difference in ΔPaid : patient distribution, profit and teaching status etc.  Dependent Variable: ΔPaid (insured) = %Paid (self-pay) - %Paid (insured) ΔPaid (insured) = %Paid (self-pay) - %Paid (insured)  Independent Variables Safety net measures (DSH hospital & % revenues from DSH, Top 25% SP, For-Profit, DSH*For-Profit) Safety net measures (DSH hospital & % revenues from DSH, Top 25% SP, For-Profit, DSH*For-Profit) SP adjustments: % homeless, % SP accidents, % out of state SP adjustments: % homeless, % SP accidents, % out of state Patient distribution: Outpatient SP Share, Share of commercial patients Patient distribution: Outpatient SP Share, Share of commercial patients Hospital characteristics: Bed Size, Rural, Teaching, Profit Margin from previous year Hospital characteristics: Bed Size, Rural, Teaching, Profit Margin from previous year

13 Estimated Effects on ΔPaid (Relative Price to Self-Pay Patients) Safety-Net Measures Coefficient DSH hospital DSH & for-profit % Revenues from DSH * Top 25% SP Hospital 0.092** 0.092** For-profit 0.108** 0.108** Other significant variables Coefficient % commercial patients 0.236* 0.236* % Homeless * % Out of California * Profit margin ** ** SN Hospitals did not offer higher discounts to SP compared to non-SN hospitals (CA, 2004, county hospitals excluded) * significant at 10% ** significant at 5%

14 Subsidy Doesn’t Help to Reduce “Relative Price” for SP Patients Difference in % Paid bw Self-paid and Commercial is higher in DSH hospitals (for av. DSH payment of 6%) than in non-DSH, for both for-profit and non-profit hospitals For-profit Non-DSH DSH Non-profit DSH Non-DSH 8.5% 14% 6%

15 Summary of Findings  Self-pays used to pay the highest average % of gross charges in 2000, but in 2004: On average SP paid a bit less than commercially insured (-5.4%) On average SP paid a bit less than commercially insured (-5.4%) But in a third of hospitals, self-pays still pay on average more than commercially insured patients. But in a third of hospitals, self-pays still pay on average more than commercially insured patients.  SN providers do not provide bigger discounts to SP patients compared to other hospitals; An average SN hospital have smaller discount than non-SN An average SN hospital have smaller discount than non-SN This includes DSH and Top SP hospitals This includes DSH and Top SP hospitals  But non-profits do provide discounts (additional 11% of charges)  Hospitals that provide most care for self-pays rarely get government DSH subsidy official “safety net” is hardly a safety net for self-pays official “safety net” is hardly a safety net for self-pays

16 Policy Issues  Should we expect DSH provider to offer bigger discounts for uninsured in return for getting a subsidy?  The hospitals where most SP patients receive their care have higher relative prices than the rest of the hospitals Should those hospitals receive additional financial support for caring for uninsured, as DSH often doesn’t target them? Should those hospitals receive additional financial support for caring for uninsured, as DSH often doesn’t target them? Should there be regulatory or social pressure to limit prices to the uninsured? Should there be regulatory or social pressure to limit prices to the uninsured?