Uncompensated Care Costs Are Way Down For Kentucky Hospitals

Oct 4, 2016

Credit Flickr/Creative Commons

If you go to the hospital this year, there will likely be a small decrease in your bill from previous years.

That’s because hospitals in Kentucky saw the lowest rates of charity care in 2015 since before Medicaid expansion went into effect four years ago.

But it might not last.

Charity care refers to the services hospitals provide patients who can’t pay because they don’t have insurance. Hospitals get paid back for this partially by the state and federal government, but they pass the remaining cost on to insured people.

In 2015, Kentucky hospitals had $552 million in charity care costs, compared with $2.4 billion four years ago.

The findings on uncompensated care come from a new report from the Foundation for a Healthy Kentucky report out last week.

A big reason for the dip is likely from the state’s expanded Medicaid program.

The program — traditionally for the very poor, pregnant women and those with disabilities — was expanded in 2014 to adults without children making less than $11,880 a year, or 38 percent more than the federal poverty limit. More people can now pay for a doctor’s visit before it evolves into needing emergency care. And more insurance coverage means less in uncovered costs.

“When they can’t pay, that goes into uncompensated care,” said Deborah Bachrach, a partner with health care consulting firm Manatt Health in New York.

The government pays a portion of the costs of the uninsured. But consumers also pay. According to Jim Brill, associate director of health care consulting at Kentucky accounting firm Dean Dorton Allen Ford, that cost comes via higher rates charged to paying customers.

“So in essence they will need better [payment] rates from private insurers. The insurance companies will turn around and charge higher premiums to employer groups,” Brill said. “And for [employers] to be profitable, it’ll impact the employees. Employees will end up paying the bulk of it.”

So the good news is that less charity care means less unpaid costs passed on to insured people. But this picture is about to get much more complicated, and potentially not as sunny.

Cuts Coming

Hospitals in the U.S. were originally set up as charities for the sick and poor who couldn’t pay. But in the 1950s, a federal law gave money to these outfits and others to expand and build new hospitals. As a condition of the funding, hospitals had to provide care regardless of the ability to pay, according to Glen Mays, a professor of health systems at the University of Kentucky.

Then, in 1965, Medicaid – the government health care program for the poor – was created. Medicaid pays out what’s called Disproportionate Share Hospital payments, which reimburse hospitals a percentage of the care they give to uninsured people.

Today, Kentucky Medicaid reimburses 30 percent of the charity care hole, and the federal government matches it. That DSH payment is funded by a 2.5 percent tax on hospital revenues.

The uncovered cost gets passed on to insured consumers. But there are national cuts coming to DSH payments from the federal government planned to take effect in 2018. The Affordable Care Act originally intended for every state to expand Medicaid, which theoretically would’ve reduced the cost burden on hospitals. But 19 states haven’t.

“The logic is that under ACA, we’ve expanded health insurance coverage so hospitals should have less demand for providing care to uninsured patients,” said Mays.

Nancy Galvagni, senior vice president of the Kentucky Hospital Association, said there were national estimates that 40 percent of people would enroll in expanded Medicaid coverage, while 60 percent of people would enroll in an exchange.

But in Kentucky, six times the people enrolled in the state exchange versus Medicaid expansion. As of this year, 74,640 were enrolled via the state exchange Kynect, while 428,000 newly eligible people enrolled in Medicaid.

That matters because Medicaid only pays 85 percent of what hospitals charge, and exchange plans typically pay closer to the actual charges. Galvagni said the intention of the Affordable Care Act was that hospitals wouldn’t lose money in the wash of reduced payments for charity care, because they would get more payments for people on exchanges and Medicaid.

“The government payers do not reimburse hospitals at their cost to provide the services, so when we look at increase in Medicaid volume, while it is an increase in revenue, we’ve had an even higher cost to provide those services. It’s still a drag on our finances,” said Adam Kempt, system vice president of finance for Norton Healthcare in Louisville. “But the decrease in the uninsured pay has offset that.”

The Medicaid Expansion Effect in Kentucky

The fate of the Medicaid expansion program in Kentucky could have an impact on any cost savings in Kentucky, however.

Gov. Matt Bevin submitted proposed changes to the federal government in August. Medicaid recipients would have to volunteer, work or do job training to qualify. Monthly payments would also be required to keep coverage.

Debra Bachrach with Manatt Health said these payments, otherwise known as premiums, mean fewer people will likely have Medicaid coverage.

“They create more uncompensated care because they create more uninsured people — they can’t access coverage because the premium cost is a barrier,” Bachrach said.