- Local health care systems give away half a billion dollars per year in uncompensated care.
- The burden for paying for uncompensated care in part shifts to the insured — the more people who have insurance, the lower uncompensated care will be.
- Uncompensated care declined after ACA, but it was less help to states like S.C. that did not accept the ACA’s Medicaid expansion.
- Although charity care and bad debt increased in the last decade for local health care systems, the losses were offset by revenue growth.
- Projected losses to U.S. hospitals if ACA is repealed could reach $165.8 billion by 2026.
- The future of population health and fee-for-value initiatives is unclear.
In 2016, Greenville Health System (GHS) gave away medical care valued at more than half a billion. They weren’t alone. Other Upstate health systems also gave away hundreds of millions of dollars in care to people who have too little or no health insurance.
To put it in perspective, the health systems give away care that is worth several times the City of Greenville’s annual budget of $170.98 million. It’s even more money than dozens of nations spend, including Sierra Leone, Belize, and Syria.
But those large numbers don’t tell the whole story: For most systems, uncompensated care actually declined over the last decade as a percentage of total revenue.
The half a billion-plus is what health systems attribute to charity care and bad debt costs, collectively called uncompensated care. Charity care goes to people without insurance and who cannot afford their medical costs. It also can cover Medicaid and Medicare shortfalls. Bad debt includes unpaid bills from people who had more medical expenses than their insurance covered, and who couldn’t or wouldn’t pick up the difference.
The way uncompensated care is calculated and reported is complicated. There are the actual costs — related to salaries, services, and products — and there is the estimated value of the care. The value is what a hospital might charge someone if the patient had to pay full price — like a retail price tag. Since every payer — the term the health care industry uses for insurance companies, Medicare, Medicaid, etc. — negotiates a different rate, the charges patients see on their bills can vary greatly.
“If I go to the ER and the charge is $1,200, the ER’s actual cost to provide that service is probably less than half of that,” says Lee Crandall, professor in the department of public health sciences at Clemson University.
So if a patient with no insurance and no way of paying for their medical care ends up in the emergency room, someone has to cover the costs of that person’s care because the ER cannot refuse to help the person. And that someone typically includes the federal and state government and businesses and employees with private insurance.
“That’s the dirty little secret of health care,” Crandall says. “The only way hospitals can survive is to increase charges to people who are insured or who have Medicare.”
Shifting the burden to the insured
The system works so long as there are enough people with employer-sponsored health insurance to pay the higher rates. Private insurance pay at GHS is about 32 percent.
Nationwide, more people gained private insurance in the post-Affordable Care Act (ACA) years, which meant that uncompensated care declined in overall dollars or at least in proportion to revenues, says Robert Hartwig, professor of finance at the University of South Carolina in Columbia.
In states like South Carolina that did not accept the ACA’s Medicaid expansion, the ACA was less help to hospitals’ bottom line.
Spartanburg Regional Healthcare System (SRHS) and AnMed Health in Anderson have seen their combined charity care and bad debt costs increase over the past decade. For GHS, the combined costs have doubled. SRHS has seen a near 50 percent increase.
“Charity care and bad debt have increased because we have increased the size of our system and serve more patients,” says Terri Newsom, GHS vice president and chief financial officer (CFO).
From SRHS’ perspective, the increased costs are offset by revenue growth.
“While the total amount of charity care/bad debt has increased, it has increased at a slower rate than the growth of revenue in the health care district,” says Ken Meinke, SRHS chief financial and administrative officer. “As a result, the percentage of charity care/bad debt is less than it was in prior years.”
As a percentage of gross revenue, SRHS’ bad debt and charity care has declined from 9.28 percent in 2006 to 6.05 percent in 2016.
Upstate health system CFOs say they have seen some evidence of people gaining insurance through the ACA, but not enough to make a big impact on their overall uncompensated care costs.
“We’ve seen an increase in visits by people who were insured and coming through the emergency department,” says Ronnie Hyatt, BSSF senior vice president and chief financial officer.
GHS had the same experience: “We absolutely did see individuals who had received charity in the past and now are back in our facility with ACA exchange products,” Newsom says.
The health system estimates that the ACA added about 2 percent to its private pay percentage, Newsom says, “but these plans do not reimburse for services at the same level as non-exchange private pay.”
Only 2.5 percent of SRHS’ patients have insurance through an ACA health care exchange product. “The percentage of our patients who are uninsured has not significantly changed over the last several years,” Meinke says.
Things could have been different.
If South Carolina had agreed to the Medicaid expansion, then many low-income people who still do not have insurance would have been covered under Medicaid. That would have lowered local health systems’ overall charity care and bad debt costs, says Rozalynn Goodwin, vice president for engagement with the S.C. Hospital Association in Columbia.
Health systems in states like Arkansas that expanded Medicaid to cover more poor people saw their charity care and bad debt decline, Goodwin says.
“People who are uninsured come to the emergency room. They delay care and may not receive preventive care, and by the time they receive care it’s at an advanced stage, where it’s more expensive,” Goodwin says.
ACA repeal could cost hospitals $165 billion
Emerging national reports and research suggest things could get worse economically for health systems. President Donald J. Trump has asked Congress to pass the American Health Care Act (AHCA). The U.S. House of Representatives passed the bill on May 4, intending it to replace much of the ACA. The new bill would cut Medicaid funding and raise health insurance costs for many older and sicker patients — those who spend the most time using hospital services.
Hospital advocacy groups reported in December 2016 that if Obamacare — the Affordable Care Act — is repealed, it would cost hospitals $165.8 billion between 2018 and 2026. The estimate was based on a projected 22 million people losing insurance by 2026.
In March, the Congressional Budget Office (CBO) gave its estimate that Trump’s AHCA would increase the number of uninsured people by 24 million in 2026.
By mid-May, the CBO had not issued an updated report on the AHCA, which had several amendments added after its March introduction. But other reports say the amendments will do too little to help low-income people maintain insurance coverage.
The new bill would repeal a payroll tax increase and investment income tax that only high-income Americans paid. The taxes helped fund expanded health coverage to millions of indigent and working-class families. The AHCA also would allow states to opt out of maternity care, emergency services, and some other health benefits. And it would cut Medicaid by $880 billion over 10 years.
Those changes could lead to more people who lose insurance coverage and who end up using the emergency room for all health care needs. If that happens, hospitals will see their charity care and bad debt costs increasing even faster.
“Right now, the government is paying a sizable portion of the health care bill,” Newsom says. “But if they shift it back to the person receiving the care, the individual would potentially have a difficult time paying for the care and may not access the care they need to remain well.”
Most health systems are so dependent on payments from the federal programs of Medicaid and Medicare that they could not function without the money. For instance, Medicare and Medicaid pay for about 59 percent of Greenville Memorial’s hospitalized patient care.
Medicaid expansion was partially paid for by cuts in Medicare payments. South Carolina hospitals had the same Medicare cuts as hospitals in other states, but did not benefit from expanded Medicaid, Meinke says. “We already have it pretty bad from that perspective.”
Uncertain future for fee-for-value care
Under the Affordable Care Act, health systems grew bigger, merging with smaller hospitals, and began pilot programs that found ways to save overall health care money through population health initiatives. The idea was to spend preventive dollars on keeping people healthy with the hope of reducing their hospital and emergency room visits. The ACA provided grants and other assistance to encourage these programs, and Upstate hospitals have started to move in the direction of keeping people healthier and out of the hospital.
The AHCA doesn’t mention population health or funding for pilot programs that improve quality and cut spending, so it’s unclear how the shift to population health will continue to be funded if the bill is passed.
However, health system officials say they do not believe hospitals will turn the juggernaut around and drop all prevention efforts.
Population health is the path Bon Secours St. Francis currently is on, and the health system will continue in that direction, Hyatt says.
“Our charity care fluctuates up and down, but negative changes [to the ACA] will not modify our strategy to provide health care to those in need,” Hyatt says.
GHS, the region’s largest health system, also will not stop its work to keep people healthier rather than just treat them when they’re sick.
“We’ve done a lot of work to get ready for the shift from fee-for-service to fee-for-value, doing more for taking care of people and focusing on wellness and rewarding providers for doing well,” Newsom says. “That’s the piece from the Affordable Care Act that I hope we don’t lose sight of.”