Less charity care has been offset by lower patient volume. The result is revenue cuts and worrisome implications for tax-exempt status and DSH payments.
Hospital CFOs in Medicaid expansion states may have thought their organizations were in for a financial boost when previously uninsured, low-income patients began receiving healthcare coverage.
Yet, that hope is not being realized, according to a recent hospital data analysis from Chicago-based public accounting and consulting firm Crowe Horwath. Revenues have been hurt, but beyond that, there are major implications for nonprofit hospitals and those reliant on DSH payments.
A Decline in Charity Care and Self-Pay
While the analysis shows that charity care in expansion states has declined 37% and the self-pay payer mix has declined 31% since the start of 2014, a related drop in patient volume has left provider organizations without the revenue boon many had expected, says Cory Herendeen, a principal at Crowe Horwath.
"In Medicaid expansion states … a lot of what we are seeing is charity care dramatically going down and receivables from self-pay going down, but facilities really aren't receiving very much more actual revenue. Some of that is because Medicaid reimbursement rates are fairly low, so facilities are not getting paid more," Herendeen says.
Additionally, as healthcare reform measures take hold and more patients gain better access to primary care services, Herendeen says, they are showing up less frequently in the emergency department, which has previously been an important source for hospital admissions and referrals for outpatient care.
"Patients are not going to the ER for minor sicknesses and conditions. That is generally very positive; however, we are seeing that when outpatient volume drops, then there is obviously a revenue drop on the provider side, as well. They are getting paid less in total, but they are also seeing a volume drop that is substantial," he says.
"Hospital CFOs originally thought having more patients covered was going to be great because it would mean they were going to have less bad debt … but the data is showing across a large section of hospitals that they are not really seeing more dollars coming in."
Maintaining Tax-Exempt Status
Another key point borne out by the data analysis, Herendeen says, is that as hospitals provide less charity care, their tax-exempt status could be in jeopardy.
He suggests that hospital staffs should review and update existing charity care policies and track all uncompensated care to demonstrate the community benefit they provide.
While these are tasks that are typically overlooked, Herendeen says, they deserve close attention.
"Hospitals need to make sure they are really tracking charity care and bad debt. If a person comes in and is covered but doesn't pay their deductible for Medicare or Medicaid, that should be tracked," he says.
"That reporting is woefully lax at a lot of hospitals because they are mainly concerned with the revenue that they are bringing in. Tracking charity care usually becomes a second or third job for someone, but it adds up when you consider the amount for every patient you don't collect from. It ends up going to bad debt, but if you didn't get paid for it, it should be recorded as charity care."
For example, Herendeen says, hospital revenue cycle executives should, among other things, maintain a charity care log for claims with dates of service during each cost report period and retain an electronic copy of the log until the cost report is final. They should also ensure charity care amounts are accurate, establish separate transaction codes for bad debt and charity care, and make sure these transactions cleanly map to general ledger accounts.
"It is important to make sure you are really recording that charity care to show the community and the IRS that you are providing charity care. Going forward, hospitals are going to have to worry more about maintaining these records to make sure they retain their tax-exempt status."
Decreased DSH Payments
Hospitals that provide less charity care are also at risk of having significant cuts made to their Disproportionate Share Hospital payments, Herendeen says. Medicaid's DSH program makes federal payments to qualifying hospitals that serve a large number of Medicaid and uninsured individuals.
For many hospitals, losing a large portion of their DSH payments without experiencing a significant jump in revenue through Medicaid expansion would be a "double whammy," he says.
Because DSH payments are made in arrears, it may take two to three years for hospitals to feel the full financial impact. However, when the decrease in revenue becomes a reality, some independent hospitals may not survive and may have to look to be acquired by larger players, Herendeen says.
"This problem is not really going to be seen by hospitals for likely another three years until the rules go into effect. But when it happens, that is going to be a pretty big change," he says.
"Those DSH payments in the past are what have kept smaller nonprofit hospitals afloat. I think it has been the difference between them making it and not making it. A lot of those communities where they have individual hospitals that haven't been through consolidation yet will experience that. Many of the CEOs and CFOs at those institutions can see it coming."