Thursday, January 26, 2006

Illinois Attorney General Charges Not-For-Profit Hospitals Give Little Charity Care

The Chicago Sun-Times reported that Illinois state Attorney General Lisa Madigan wants legislation that would force not-for-profit hospitals to provide more free care to the poor.
She cited a 2003 report that most hospitals provided charity care worth less than 1% of the hospitals' total charges. The Illinois Hospital Association (IHA) countered that "these statistics can be misleading for a number of reasons, partly because hospitals only collect a portion of what they charge, and charity care amounts don't reflect the compenstated care hospitals provide when bills go unpaid."
On the other hand, I wonder if these amounts were compared to the charges for specific services some hospitals make to uninsured patients, which are often much higher than those for those same services negotiated with insurance companies and managed care. If they were compared to those much higher charges rather than what the hospital usually accepts for insured patients, even these figures could have inflated the amount of charity care provided.
The IHA also "doesn't like the idea of any law dictating hospitals' charity requirements. An IHA task force report written last year says such mandates run the risk of shifting costs to insured patients and causing cuts in hospital services."
I agree that trying to address this problem with legislation specifying charity care amounts may be heavy-handed. A potentially more flexible approach would be to give more power over this issue to a state regulatory board.
But I'm afraid this heavy handed approach may seem attractive after numerous stories of hospitals "'gouging' those without health insurance by charging them much higher rates than what's paid by government-run Medicare and Medicaid programs or by private insurers, who have the clout to negotiate steep discounts." "Hospitals also have been chastised for overly aggressive attempts to make financially strapped patients pay up." [Quotes from the Sun-Times.]
These ongoing issues make it particularly worrisome that some thought leaders are now advocating giving hospital managers even more power to enforce ethical standards covering physicians (see post here).


Martin said...


How would you propose charity care be calculated? One needs some way to allocate fixed and variable costs to charity care. I'll freely admit that charges are not the appropriate the way to do so since they do not reflect acutal costs (see Reinhardt et al. from the current issue of Health Affairs). On the other hands, what do costs mean in the context of a high fixed-cost enviroment? Should hospitals recover all of their fixed costs from paying customers rather than the uninsured? Alternatively, should the uninsured be charged the average of all negotiated payment ammounts? That presents a difficult set of incentives since then most insurers would be unlikely to develop negotiated rates with hospitals. Ironically, I think the most reasonable approach would be for states to use the Medicare fee schedules to assess the value of charity care. That is, at least theoretically, an objective third party standard for costs and a reasonable profit (yes, I am aware that many hospitals claim to lose money on Medicare patients).

Roy M. Poses MD said...

I'm not an economist, so the best I can do is to ask that it be calculated in a transparent way that makes clear sense. Using "rack rate" charges clearly doesn't make sense. It seems that Medicare reimbursement rates would be an improvement, but is not ideal.