Clarian and Health Care Costs and Health Care Reform and Hospitals and Health Care & Life Sciences

Hospital charity cases growing as ranks of uninsured swell

April 30, 2007

The cost of charity has never been so high.

In the last three years, Indianapolis hospitals have seen a substantial run-up in the amount of charity care they give to patients who can't pay.

The biggest jump came at Clarian Health Partners, the state's largest hospital system, which watched its charity care soar 144 percent since 2003 to nearly $45 million.

Other Indianapolis hospitals saw smaller but still sizable surges.

Three key factors are driving the trend: The cost of care is rising, more people are uninsured, and government officials are scrutinizing not-for-profit hospitals to make sure they give enough charity care to merit the tax-exempt status they receive. Some hospitals also are starting to adopt broader definitions of what counts as charity care.

Multiple hospitals in Illinois have had their property-tax exemption revoked when local authorities determined they were not offering enough charity care. Attorneys general in Kansas, Minnesota and Ohio have been pressing hospitals to justify their tax-exempt status.

"Increasingly, the writing is on the wall that these figures are going to become important," said Greg Pemberton, a health care attorney at Ice Miller in Indianapolis. "It's a huge deal."

It's huge because the amount of charity care Indianapolis hospitals give away is equal to 1 percent to 3 percent of their revenue. That's also about the size of most not-for-profit hospitals' profit margins, Pemberton said.

If hospitals lost their tax exemptions, they could be stuck with millions of dollars in new expenses even as their spending on unreimbursed care is skyrocketing. Hospitals often lose money not only when patients can't afford or fail to pay, but also because government programs such as Medicare and Medicaid don't pay hospitals enough to cover the cost of services.

So whether it's altruism or purely self-interest, not-for-profit hospitals nationwide have snapped into action in the past year, as Sen. Charles Grassley, R-Iowa, and Sen. Max Baucus, D-Montana, increasingly scrutinize the issue.

"Everybody is now playing catch-up on reporting charity care," said Dan Evans, CEO of Clarian Health in Indianapolis. For example, Indianapolis-based Community Health Network is spending $125,000 on new software to help it more easily determine a patient's ability to pay before it sends a bill. And when it sends bills, Community includes a full description of its charity care policy on the back.

It also has counselors quiz patients about their finances--even on their way to having procedures done--to see if they might qualify for charity care. A patient's ability to pay determines if a hospital's losses are truly charity care or simply bad debt.

"The story here is, how do we justify or how do we earn that we're a tax-exempt organization?" said Tom Fischer, Community's chief financial officer.

Other hospitals are doing similar things to make sure their patients know to ask about charity care.

Indianapolis' major hospital systems--Clarian, Community, St. Vincent Health, St. Francis Hospital and Health Centers--provide charity care to patients with incomes up to double the federal poverty line. (For a family of four, the poverty line is $20,650.) Some also give large discounts to patients with incomes up to three or four times the poverty line.

Indianapolis' Wishard Health Services makes its mission to serve patients in poverty or without the ability to pay. Its charity care in 2006 totaled $265 million, the most of any Indianapolis hospital.

Charity care is becoming increasingly prevalent partly because of changes in Indiana's economy.

The state has lost roughly 100,000 manufacturing jobs since 2000, along with their typically good health care benefits. In their place have come more service-sector jobs, which tend to offer less attractive or even no benefits.

As a result, more people show up in hospital emergency rooms without any insurance.

In 2005, one out of every seven Hoosiers--or about 870,000--had no health insurance. That total was up 24 percent since 2000, according to the U.S. Census Bureau.

"There are more people who are without insurance who are impoverished. We're seeing it across all of our facilities," said Mark Ellison, executive vice president of finance at St. Vincent Health, which operates 17 hospitals around Indiana.

At the same time, employers have recently shifted more of the cost and responsibility of health insurance to their workers, using higher deductibles and plans such as health savings accounts.

Sometimes, the out-of-pocket costs on those plans are so high that a catastrophe still can overwhelm a patient's finances, said Clarian's Evans.

These trends not only mean fewer people can pay, but they actually lead to higher costs for care, said Matt Gutwein, CEO of the Health and Hospital Corporation of Marion County, which operates Wishard Health Services.

"When they don't have insurance, they delay getting their care," Gutwein said. "Therefore, when they finally come to get health care, they're sicker, and so the bill is therefore higher."

Even if uninsured patients seek care promptly, the cost of delivering it has continued to climb at roughly double the rate of inflation.

Those increases have led more employers to stop offering health insurance to their workers, accelerating the number of uninsured and the amount of care. Hospitals then shift those losses back to employer-sponsored health plans, which can lead to even more employers dropping or curtailing coverage.

Indianapolis hospitals say they always are conservative in what they report as charity care. But Ed Abel, director of health care services at Blue & Co., an Indianapolis accounting firm, said some hospitals around the country have stretched the definition of charity care by adding in all they can--even counting the free parking they offer as "charity".

"It's up to each hospital," Abel said. Hospitals can figure charity based on how much the free care costs them or based on what they would have charged for it. The latter method would yield a much higher number.

All Indianapolis hospitals said they figure their charity care numbers based on their costs, not charges.

Industry organizations, such as the Catholic Health Association, have come up with guidelines for categorizing charity care. But Grassley and Baucus, the U.S. senators, called their efforts just a start.

The main issue is distinguishing between truly charity care--when a patient simply cannot pay--and bad debt, when a patient could pay but doesn't. Hospitals also debate whether they should count as charity the losses they sustain on Medicare and Medicaid patients.

Part of the reason for Clarian's big jump in charity care is that it recently liberalized its charity care policy. For years, it excused all costs for patients who make up to double the federal poverty line. More recently, it started excusing large portions of the bills of people earning up to four times the poverty line.

Executives at all of Indianapolis' major hospitals said charity care is fundamental to their organizations and philosophies. They haven't been stingy in the past, they claim. They just haven't done a good job telling their story to the public, said Greg Anderson, vice president of finance at St. Francis.

"The Sisters of St. Francis have tried to do what we can to meet with the state Legislature," he said, "to make sure that the legislators understand the community benefit report [we file], making sure the public understands everything we are doing."

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