Uncompensated Care is the total cost of hospital care provided for which no payment was received from the patient or an insurer. Uncompensated care is the sum of bad debt and charity care at cost, both described in more detail below.
Charity Care is the dollar value of free care provided by hospitals to patients who are unable to pay their medical bills. It represents expenses for which hospitals never expected to be reimbursed. A patient’s ability to pay is determined by a hospital’s charity care or financial assistance policy, which typically considers factors such as individual and family income, assets, employment status or availability of alternate funding sources. Charity care determinations are typically made prior to admission; however, it may also be granted later to allow for emergencies or a lack of information about the patient’s financial status at the time of admission.
Bad Debt is incurred when a hospital cannot obtain reimbursement for care provided because a patient is either unable or unwilling to pay their bills. Unlike charity care, bad debt involves situations where the patient did not request or qualify for financial assistance. For uninsured patients, the amount of bad debt can include all or any portion of the unpaid bill. For insured patients, the unpaid portions of the bill that are the patient’s responsibility—such as co-pays and deductibles—are counted as bad debt.
Undercompensated care (or underfunded care) is associated with governmental programs such as Medicare and Medicaid. These programs have historically paid well below the cost of providing care.
CHA’s Center for Health Information and Data Analytics released a study that shows hospitals in states that chose to expand Medicaid under the Affordable Care Act saw significantly more Medicaid patients and a related reduction in self-pay and charity care cases; whereas, hospitals in states that chose not to expand Medicaid experienced no changes outside normal variation in Medicaid volume or self-pay and charity care cases. Click here for the full report. For the news release, click here.
The provider fee’s effect on uncompensated and undercompensated care
The Colorado hospital provider fee helped reduce Medicaid uncompensated and undercompensated care by $395 million in 2013. The provider fee is an assessment on hospitals by the State of Colorado. The resulting revenue is used to draw a dollar-for-dollar federal match that is used to cover the uninsured by expanding eligibility for Medicaid and Child Health Plan Plus (CHP+) and increase Medicaid reimbursements, without placing any burden on Colorado taxpayers. Click here to learn more about the provider fee in Colorado. Unfortunately, these improvements have been more than offset by reductions in Medicare payments. In 2013, Colorado hospitals received $579 million less for providing care for Medicare patients.
Colorado hospitals provided more than $1.8 billion in uncompensated and undercompensated care in 2013. Uncompensated care (a combination of charity care and bad debt) represent approximately $250 million of the total, while Medicare and Medicaid underpayments accounted for approximately $1.55 billion.
As of 2013, Colorado hospitals receive $0.66 in government payments for every $1.00 spent providing services to Medicare patients, $0.80 for every $1.00 spent providing care to Medicaid patients and $1.51 for every dollar spent providing care to patients with private insurance coverage.
Consumers seek value from the health care they receive. Being aware of the many factors most traditionally cited as contributors to price variation may help you better understand which of them might affect the cost of care at a given hospital. Click here or on the image at right for a visual representation on the variety of factors that influence price variation at health care facilities.
Why do prices vary between hospitals for the same procedure or service?
There are many variables that impact hospital prices. These include:
Patients who are sicker, have multiple medical conditions or chronic illness generally require additional services, resulting in higher hospital charges.
Each hospital has a unique mix of payers. Government programs such as Medicare and Medicaid generally pay hospitals at rates less than the costs of providing care. Hospitals cannot remain financially viable if payments are consistently below costs. Hospitals provide services to all patients that access the emergency department regardless of their ability to pay. Some patients seek treatment at the hospital emergency department when they are unable to locate any other provider who accepts their insurance or if they lack insurance. Hospitals generally have charity care policies that provide assistance to patients in need that meet the requirements established by the hospital. However, hospitals that have a higher percentage of such patients ultimately must attempt to recover a greater percentage of their operational costs by shifting their unreimbursed costs to private insurers.
Insurance companies negotiate discounts with hospitals on behalf of the patients they represent. There are 541 insurance plans offered in Colorado from 18 carriers. Each insurance company negotiates different rates with hospitals. Even for identical medical procedures, hospitals get paid different amounts by insurers.
Hospitals with new technology may have higher charges than those with older equipment. The replacement cost for new equipment is typically higher than the original cost of the old equipment.
Salary and benefit costs vary by community and are generally higher in urban areas. Shortages of nurses and other professional staff may increase hospital costs.
Range and complexity of services provided
Hospitals differ in the range of services provided. Some provide a full range required for diagnosis and treatment, including very specialized services. Other hospitals may stabilize patients and then transfer them to another facility for specialized care. Hospitals provide services to ensure access to health care in their community even when they lose money on those services. Such losses force hospitals to shift costs to private insurers. Services vary by community, but some examples include burn centers, trauma care, obstetrics, high-risk nurseries, poison control centers, medical education, services for the poor, organ transplants and other programs.
Why is there a difference between what hospitals charge and the payments they receive?
Federal regulations require a hospital to charge all its patients the same amount (with limited exceptions) for the same service. The amount collected by the hospital is almost always less than the amount billed for because:
- Government programs, such as Medicare and Medicaid, typically pay hospitals much less than the billed charge. These payments are determined by government agencies and hospitals do not have any ability to negotiate these rates.
- Hospitals typically have policies that allow low-income persons to receive reduced-charge or free care
Why do payments vary between hospitals for the same procedure or service?
While the APCD does not include Medicare data, it is helpful to understand that even government payers often pay different amounts of the same service. Medicare payments to hospitals vary depending on the Medicare payment policy based on the unique characteristics of the hospital.
For both inpatient and outpatient, the national payment amount is adjusted by an area wage index to reflect regional variation in hospital salary and benefit rates. Generally hospitals located in urban areas tend to have a higher wage index.
Graduate medical education
Hospitals that have residency programs to train individuals after completion of medical school receive additional payments from Medicare. These payments provide a partial offset to the hospital costs for training these future physicians (salaries and benefits for residents, faculty teaching stipends, administrative cost to operate the residency programs). Hospital residents provide services to all patients, not just Medicare patients. These payments are crucial for ensuring that patients in the future have an adequate supply of physicians to meet their medical needs.
Indirect medical education
Medicare provides payments to teaching hospitals to reimburse the additional indirect costs of patient care associated with operating an approved teaching program. These costs include tests utilized to diagnose and treat patients.
Disproportionate share payments
Hospitals that treat a large number of low-income patients receive additional Medicare and Medicaid payments to offset some of the losses incurred in treating these patients. Low-income patients tend to be sicker and more costly to treat than other patients with the same diagnosis. Higher costs also result from the need for additional staffing and services, such as translators and social workers, to care for low-income patients.
Critical access hospitals (CAHs)
Hospitals with fewer than 25 beds may be classified as critical access by Medicare. These hospitals are reimbursed at 101 percent of cost allowable by Medicare, which is lower than the full cost of providing care. This Medicare payment method recognizes the unique challenges CAH facilities face in providing health care services in rural areas. This special designation helps ensure access to health care for all patients in rural areas.
Click here for a visual representation on the variety of factors that influence price variation at health care facilities.
Colorado Hospital Provider Fee
The Colorado hospital provider fee has improved access to health care for tens of thousands of Colorado’s most vulnerable citizens without drawing any money from Colorado’s General Fund. To date, the hospital-paid tax has enabled 305,650 previously uninsured Coloradans to receive health care coverage.
- As of September 2014, the provider fee has funded the following Medicaid expansions:
- 72,902 parents at 60 to 133 percent of the federal poverty level (FPL)
- 18,849 children and pregnant women enrolled in CHP+ at 205 to 250 percent FPL
- 2,925 people with disabilities through a Medicaid buy-in program
- 210,970 adults without dependent children
How does it work?
The provider fee is assessed on hospitals by the State of Colorado. The resulting revenue is then used to draw a dollar-for-dollar federal match that is used to cover the uninsured by expanding eligibility for Medicaid and CHP+. The provider fee also increases the amount that providers are reimbursed for treating patients enrolled in Medicaid or the Colorado Indigent Care Program (CICP).
The provider fee is a win-win-win because it provides medically underserved Coloradans with access to high-quality health care; reduces the amount of uncompensated care for hospitals; and does not draw upon state funds.
- Uninsured Coloradans: As many as 100,000 uninsured Coloradans will be able to access critically important preventive, primary and acute care services through Medicaid and CHP+ expansions.
- Hospitals: The provider fee increases hospital reimbursement rates and reduces the amount of uncompensated care by providing coverage for more previously uninsured patients. Medicaid payments to hospitals still fall short of the cost of providing them ($0.80 on the dollar in 2013, as opposed to $0.61 in 2008 prior to the enactment of the provider fee); however, the increased reimbursements have been instrumental in decreasing operational losses for hospitals.
- All Coloradans: Hospitals are forced to make up for shortfalls created by low reimbursement rates and treating uninsured patients by requiring higher payments from commercially insured patients, which in turn forces consumers to pay higher health insurance premiums. The provider fee helps reduce this “cost shift.”
- The Colorado state budget: The provider fee does not use any of the state’s tax revenue in its General Fund. While Medicaid enrollment has increased in Colorado over the past few years, this is due to a challenging economy and not a change in Medicaid eligibility. Additionally, from inception of the provider fee in July 2009 through September 2013, Colorado hospitals provided more than $170 million in General Fund relief via the provider fee.
Colorado hospitals provided more than $1.8 billion in uncompensated and undercompensated care in 2013. The Colorado hospital provider fee helped reduce levels of Medicaid and undercompensated care reimbursement by $395 million in 2013, but these improvements have been more than offset by more than $579 million in reductions to Medicare payments in 2013. Colorado hospitals are committed to increasing coverage and access to health care without increasing the burden on the state or its taxpayers. Click here to learn more about uncompensated care at Colorado hospitals and what it means for health care in our state.
For more information on the provider fee, visit the Colorado Department of Health Care Policy and Financing website.