Teaching Hospitals Provide Significantly More Free Care To The Poor And Uninsured Than Any Other Hospitals

New Report Finds That Growing Burden Is Threatening Ability Of Teaching Hospitals To Continue Serving The Poor Especially In High Managed Care Markets

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As the numbers of uninsured increased steadily in the 1990s, so did the volume of free care that hospitals provided to this group. But nowhere did the amount of uncompensated care provided increase faster than at teaching hospitals, especially those in highly competitive markets, according to a report released today by the Commonwealth Fund Task Force on Academic Health Centers. Between 1991 and 1996, the share of charity care provided in their communities by medical schools and their primary teaching hospitals - known as Academic Health Centers (AHCs) - grew from 20.4 percent to 27.9 percent. According to the report, AHCs play a disproportionate role in meeting the needs of the poor and uninsured. While this is especially true of publicly owned AHCs, privately owned teaching hospitals also provide more care to this vulnerable population than privately owned non-teaching facilities. But the growth in the level of free care provided is even more pronounced in highly competitive markets - those with high levels of managed care penetration, according to the report. In these markets, the share of uninsured patients admitted by public AHCs jumped from 23.2 percent to 36.4 percent between 1991 and 1996. The share for private AHCs also rose, from 8.2 percent in 1991 to 13.8 percent in 1996. According to the report, A Shared Responsibility: Academic Health Centers and the Provision of Care to the Poor and Uninsured, competition in these markets is changing patterns of care for the poor. At the same time that AHCs are seeing an increase in the number of uninsured and poor patients that walk through their doors, other hospitals are seeing a decrease. "If the number of uninsured increases, many community-based providers may have to consider limiting their own commitment to absorbing the financial losses of caring for uninsured and low-income patients," said David Blumenthal, executive director of the task Force and director of the Institute for Health Policy at Massachusetts General Hospital/Partners HealthCare. "Teaching hospitals don't have that option. They are committed to maintaining their social missions of research, medical education, and providing care to the poor and uninsured. Needless to say, this places them at a financial disadvantage." In urban communities served by AHCs - there are 125 AHCs nationwide - the level of charity care provided by these institutions increased by over 40 percent, from 2.4 percent of gross revenues in 1991 to 3.4 percent in 1996. In 1996, private teaching hospitals provided 13.5 percent and public hospitals provided 30.7 percent of uncompensated care in a given community. In effect, teaching hospitals were providing 44.2 percent of all uncompensated care in their community. Among private institutions, uncompensated care - which includes bad debt, contractual allowances and charity care - as a percent of gross patient revenues, was twice as high in AHCs, as in all other types of private hospitals, according to the report. At the same time that many public AHCs have seen their charity care burden increase, they have witnessed a decrease in their share of Medicaid cases, which dropped from 24.3 percent in 1991 to 17 percent in 1996. "This is significant given that the level of extra Medicaid and Medicare payments teaching hospitals receive is linked to the number of Medicaid patients they admit," said James Reuter, associate executive vice president for administration at Georgetown University Medical Center and one of the authors of the report. "They are losing a key source of revenue at the same time they are being asked to increase services to uninsured patients." As might be expected, caring for the poor and uninsured is having a significant impact on the bottom line of AHCs. According to the study, hospitals with charity caseloads of less than 6 percent saw their margins increase over time. The average margin for hospitals with higher charity caseloads was not only lower, it actually decreased from 1994 to 1996. In addition to taking on an increasing share of care for the poor and uninsured, teaching hospitals are struggling with sustaining revenue streams that enabled them in the past to cross-subsidize their social missions, including providing free care to the poor. Among the Task Force findings:

  • Faculty practice plans (FPPs), which are affiliated with AHCs, are providing an increasing amount of charity care, but without the subsidies from Medicare and Medicaid that are available to hospitals providing a disproportionate amount of care to the poor and uninsured. FPPs provided an average of more than $17 million in charity care in 1998.
  • Medicare disproportionate share payments are not efficiently targeted to provide additional support to safety net hospitals that treat a disproportionate share of uninsured patients.
  • Medicaid disproportionate share payments are inequitably distributed and poorly targeted, and often not related to need.
  • AHCs provide a disproportionate share of specialty care services to the poor and uninsured. For example, they are the primary providers of care for trauma cases and high-risk infants who are either uninsured or covered by Medicaid.
The Task Force concludes that the growing number of uninsured is having a serious effect on AHCs and their ability to continue providing free care to these vulnerable populations, especially in highly competitive markets. Unless steps are taken to share the responsibility of increased charity care "over the long run, increasing concentration of charity care could result in a downward spiral in the financial status of safety net institutions," according to the report. The Task Force makes several recommendations to address the problem. They include:
  • Reducing the numbers of uninsured by maximizing the number of eligible persons who are actually enrolled and covered under existing public insurance programs, including Medicaid and the Children's Health Insurance Program (CHIP), and expanding the availability of private health insurance coverage through incremental reforms.
  • Amending Medicare disproportionate share payment regulations in order to channel needed support to institutions most involved in providing care to the poor and uninsured.
  • Reforming the Medicaid disproportionate share program to target funds to acute care hospitals and other organizations that provide care to the poor and uninsured.
  • Increasing support for studies designed to improve the quality of care provided to the uninsured and to members of racial and ethnic minorities.
  • Ensuring that medical students and residents obtain appropriate training and experience in providing care to the poor, uninsured, and racial and ethnic minorities.
The Commonwealth Fund Task Force on Academic Health Centers was formed to examine the problems facing AHCs in the changing health care environment. Specifically, the task force is examining how AHCs can continue to pursue their social and academic missions of conducting medical education, performing biomedical research, supplying specialized services and providing indigent care. A Shared Responsibility: Academic Health Centers and the Provision of Care to the Poor and Uninsured is the fourth in a series of major reports generated by the task force. Leveling the Playing Field noted the effects of competitive health care markets on the organizational and financial underpinnings of the AHC enterprise. From Bench to Bedside examined the status of AHCs' research mission, and Health Care at the Cutting Edge: The Role of Academic Health Centers in Specialty Care examined the crucial role played by AHCs in the development and delivery of highly specialized, technologically complex medical services.

Publication Details

Publication Date: April 18, 2001

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