2. Hospital Uncompensated Care Issues Jack Ashby, M.H.A. Hospital Research Director Medicare Payment Advisory Commission

3. Jack Ashby What is uncompensated care? l Definition: Care provided by hospitals or other providers that is not paid for directly by patients or insurers l Includes charity care (furnished without expectation of payment) and bad debts (provider has unsuccessfully attempted to collect) l Includes entire or partial bills from the uninsured as well as unpaid copayments and deductibles

4. Jack Ashby What is uncompensated care? (continued) Uncompensated care does not include: The contractual allowances of government and private insurers Lack of Medicaid payment for days beyond a length of stay limit Courtesy discounts for employees, students, members of religious orders, etc.

5. Jack Ashby How is uncompensated care measured? l Hospitals measure their uncompensated care at charges (revenue foregone) l Policymakers prefer a measure of costs l Useful computed variables: -Uncompensated care costs as a percent of total costs -Share of uncompensated care costs covered by government subsidies -Uncompensated care losses as a percent of total costs

6. Jack Ashby How much uncompensated care do hospitals provide? l Uncompensated care costs: $21.6 billion and 6.1 percent of total costs l Uncompensated care losses: $19.0 billion and 5.3 percent of total costs Source: AHA Annual Survey, 2000.

7. Jack Ashby Trend in uncompensated care costs and losses 17.3 12.1 5.1 5.3 6.1 1996 2000 23.3% 22.4 18.9 4.6% 4.8 4.9 6.0% 6.2 6.0 1984 1988 1992 government subsidiesLossesCostsYear Proportion of uncompensated care covered by Uncompensated care as a percent of total costs Source: AHA Annual Survey.

8. Jack Ashby How does uncompensated care vary by type of hospital? Uncompensated care as a percent of total costs Type of hospital Costs Losses Urban6.4%5.3% Rural5.34.7 Major teaching10.07.4 Other teaching4.94.5 Non-teaching4.94.4 Voluntary4.74.4 Proprietary4.74.0 Urban government 15.710.6 Rural government 6.44.9

9. Jack Ashby How concentrated is the provision of uncompensated care? Uncompensated care costs Share of as a percent of total costs hospitals 0 to < 2 13.4% 2 to < 5 43.0 5 to < 10 35.3 10 to < 20 6.8 20 to < 30 0.7 30 to < 40 0.4 40 to < 60 0.2 60 and above 0.2 Source: AHA Annual Survey.

10. Jack Ashby How concentrated is the provision of uncompensated care? (continued) Measure19922000 Share of all uncompensated45% 46% care costs furnished by the top 250 providers Of the amount furnished by 61% 53% the top 250 providers, share provided by government hospitals Source: AHA Annual Survey.

11. Jack Ashby Is there a relationship between uncompensated care and overall financial performance? Uncompensated care costs as a Average Type of hospital percent of total coststotal margin Major teaching 10.0% 1.5% All other 4.9 5.4 Private 4.7 5.3 Urban government15.7-1.3 Rural government 6.4 3.4 Source: AHA Annual Survey.

12. Jack Ashby Is there a relationship between uncompensated care and overall financial performance? (continued) Uncompensated care costs Average as a percent of total costs total margin 0 to < 2 4.0% 2 to < 5 4.6 5 to < 10 4.4 10 to < 20 4.2 20 to < 30 3.8 30 to < 40 3.1 40 to < 60 3.2 60 an above-0.4 Source: AHA Annual Survey.

13. Jack Ashby What revenue sources do hospital use to cover their uncompensated care costs? l Payments from private insurers (cost shifting) l Government subsidies -Operating subsidies -Dedicated taxes -Charity care pools l Medicaid disproportionate share payments l Medicare disproportionate share and indirect medical education payments l Revenue from non-patient sources

14. Jack Ashby States with highest and lowest uncompensated care costs Louisiana 13.1% New Mexico 12.8 Texas 10.3 Mississippi 8.7 Nevada 8.1 Oklahoma 7.9 Arkansas 7.6 Florida 7.5 California 7.4 Alabama 7.3 Nebraska 2.0% Minnesota 2.0 North Dakota 2.4 Wisconsin 2.6 Oregon 2.9 Washington 3.1 Michigan 3.2 Missouri 3.3 Rhode Island 3.4 Iowa 3.9 Highest Lowest Source: AHA Annual Survey.