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Essential Hospitals Delivered One-Fifth of Charity Care Amid Cuts

Analysis  |  By Jack O'Brien  
   June 20, 2018

America's Essential Hospitals found that its member health systems handled $3.5 billion in charity care in 2016 as the federal government moved to cut DSH payments. 

Essential hospitals delivered 20% of the nation's charity care and $5.5 billion in total uncompensated care in 2016, all while facing tighter operating margins and declining federal reimbursements, according to a new report.

America's Essential Hospitals (AEH), which represents 325 hospitals, stated its members provided one-fifth of the total charity care nationwide while operating on an average of 4% margins. This is compared to an aggregate 7.8% operating margin for non-member hospitals.  

AEH defines essential hospitals as health systems that provide "significant volume of care to low-income, uninsured, and other vulnerable people."

The report stresses the importance of proper federal funding for essential hospitals, noting that essential hospitals would operate on negative margins without Medicaid disproportionate share hospital payments. In 2016, the American Hospital Association estimates that hospitals nationwide received $69 billion less than the cost of care for Medicaid and Medicare beneficiaries, according to the report.

The average essential hospital provided more than $70.7 million in uncompensated care in 2016, which is defined in the Affordable Care Act as the total of charity care and bad debt at a hospital. Meanwhile, non-member hospitals provided an average of $7.9 million in uncompensated care.

"Our hospitals' commitment to mission—ensuring every person can access care regardless of their financial status—places a heavy demand on their resources," Bruce Siegel, MD, MPH, CEO of AEH, said in a statement. "It's absolutely vital that we, as a nation, similarly commit to supporting these hospitals and the vulnerable patients and communities they serve."

Related: 'An Industry-Wide Issue': Bad Debt Over $10M at One-Third of Hospitals

Payer mix poses challenges

According to the report, 75% of the overall patient payer mix at essential hospitals in 2016 were either uninsured or covered by Medicaid or Medicare. AEH estimates its member hospitals treated 79.6 million patients for non-outpatient care and 14.7 million patients in emergency departments. Commercial insurance covered only 25% of total inpatient discharges and outpatient visits at essential hospitals.

Below is a breakdown of the inpatient and outpatient payer mix at member hospitals in 2016.

Inpatient:

  • 22.5% Medicare fee-for-service

  • 21.4% commercial insurance

  • 21.1% Medicaid managed care

  • 13.5% Medicaid fee-for-service

  • 10.7% Medicare managed care

  • 6.9% self-pay

  • 3.5% other

Outpatient:

  • 29.1% commercial insurance

  • 20.3% Medicaid managed care

  • 18.7% Medicare fee-for-service

  • 11.2% self-pay

  • 8.6% Medicaid fee-for-service

  • 7.5% Medicare managed care

  • 4.5% other

The AEH report highlighted the difficult social factors that member hospitals faced in their respective service areas. In 2016, member hospitals served communities where:

  • 25.3 million people live below the federal poverty line

  • 19.4 million are uninsured

  • 10.1 million people have limited access to healthy food

  • 350,000 people are homeless

  • Racial and ethnic minorities constituted 68% of member discharges

As a result of their service, member hospitals also took on a role as major employers with a noteworthy fiscal impact. In 2016, member hospitals:

  • Contributed to $114.8 billion total expenditures in economic activity

  • Accounted for 656,474 jobs nationwide

  • Employed an average of 2,944 people

  • Were responsible for 35% of Level I trauma centers, 38% of burn care beds, and 27% of pediatric intensive care beds nationwide.

Below are additional notes from AEH's report:

  • Member hospitals trained an average of 223 physicians in 2016, by far eclipsing the average of 76 physicians at non-member hospitals.

  • Ten percent of allied health professionals at acute-care facilities were trained at a member hospital.  

  • AEH also reported that member hospitals trained an average of 41 physicians above their federal funding cap, compared with eight at non-member hospitals.

  • The average AEH hospital totalled more than 18,000 inpatient discharges and 458,000 emergency and non-emergency outpatient visits annually.

Jack O'Brien is the Content Team Lead and Finance Editor at HealthLeaders, an HCPro brand.


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