What is Uncompensated Care?
Uncompensated care is the total amount of health care services, based on full established charges, provided to patients who are either unable or unwilling to pay. Uncompensated care includes both charity care and bad debt, both described in more detail below.
Definition of Charity Care
The dollar amount of free care, based on a hospital’s full established rates, provided to patients who are determined by the hospital to be unable to pay their bill. The determination of a patient’s ability to pay is based on the hospital’s charity care policy. Hospitals will typically determine a patient’s inability to pay by examining a variety of factors such as individual and family income, assets, employment status or availability of alternative sources of funds. Determination of charity care status is usually made prior to admission, especially if the patient has requested and applied for financial assistance. Charity care status may be granted at a later date depending on the circumstances of the admission, such as an emergency admission, or lack of information about the patient’s financial status at the time of admission. Financial assistance provided by the hospital may pertain to all or just a portion of the patient’s bill.
Definition of Bad Debt
Bad debt is the unpaid obligation for care, based on a hospital’s full established rates, for patient’s who are unwilling to pay their bill. Unlike charity care, bad debt arises in situations where the patient has either not requested financial assistance or does not qualify for financial assistance. In these cases the hospital will generate a bill for services provided. For uninsured patients, the amount of bad debt can pertain to all or any portion of the bill that is not paid. For patients with insurance, certain amounts that are the patient’s responsibility, such as deductibles and coinsurance, are expensed as bad debt if not paid.
Why is Uncompensated Care Important?
Uncompensated care is important because costs incurred by hospitals in providing this care eventually must be paid by someone. Hospitals are forced to shift these costs to other payers — typically private insurance companies. This is referred to as the “cost shift”.
How Does Uncompensated Care Affect You?
Uncompensated care and inadequate reimbursement by government insurance programs like Medicare and Medicaid end up affecting everyone because they contribute to the increase in the overall cost of health care. Costs incurred treating patients that are not reimbursed end up getting shifted to private insurers. This is known as the cost shift and is one of the contributing factors to annual increases in health care costs that are typically greater than general inflation. When hospitals are forced to raise their rates to cover unpaid costs, private insurers must raise their rates. Since most private health insurance is paid by employers, businesses ends up paying the bill. As the health care bill continues to rise businesses are forced to either reduce benefits to employees or require their employees to pay for a greater portion of their monthly premium.
Trends in Uncompensated Care
Since most uncompensated care is generated from low income patients and the unemployed, the amount of uncompensated care provided is greatly affected by the health of the economy and the level of state Medicaid funding. In general, the more low income patients who have hospital coverage provided by Medicaid the lower the level of uncompensated care. The following charts and graphs track uncompensated care levels in Oregon from 1994 to present. One can clearly see the association between levels of Medicaid funding and levels of uncompensated care. Declining levels of uncompensated care from 1994 through 1999 were due to increased coverage to Oregonians provided by the Oregon Health Plan. Due to state budgetary problems beginning in 2001, cutbacks in Medicaid have resulted in increasing levels of uncompensated care.
The following data was compiled from the Oregon DATABANK Program to track levels of uncompensated care by both year and by calendar quarter. Data has been aggregated in a variety of ways to look at uncompensated care levels statewide, in the Portland Metro area, by type A and B rural hospitals, and by “DRG” hospitals. Type A and B rural hospitals are paid by the state Medicaid agency on a “cost” basis. Reimbursement to DRG hospitals is determined by a rate based on the DRG or “diagnosis related group.” This is the same payment methodology used by the Centers for Medicare & Medicaid Services for Medicare patients. The highest levels of uncompensated care are found in urban areas – the Portand Metro area in particular. Since most DRG hospitals are located in urban areas they also experience the highest levels of uncompensated care.