When the Affordable Care Act drove the number of uninsured to record lows, many thought nonprofit hospitals would be able to shift dollars away from charity care and toward improving the health of their communities. But a new report suggests, at least in Oregon, that hasn’t happened.
The report issued by the Oregon Health Authority in early February showed that demand for charity care in Oregon hospitals dropped $226 million from 2013 to 2015, but those savings were almost entirely offset by a $212 million increase in unreimbursed Medicaid costs. Spending for community health improvement over that same time dropped from $34 million to $31 million.
“The naive assumption was we’re going to have all this extra money because people are going to get covered under expansion, and we’ll have a lot more resources freed up,” said Dr. John Whittington, a senior fellow with the Institute for Healthcare Improvement. “Certainly when you look at that report, it doesn’t seem that it’s panned out that way in Oregon.”
Four out of five U.S. community hospitals are nonprofits, and as such, are exempt from various federal, state and local taxes. They can float tax-exempt bonds and their donors can deduct charitable contributions.
In exchange, the hospitals are required to provide a benefit to the community each year, and must report to the IRS and state officials an accounting of how they accomplished that.
“The exemptions are worth a significant amount of money,” said Gary Young, director of the Center for Health Policy and Healthcare Research, at Northeastern University.
“So there’s been a long-standing concern that the provision of community health benefits are not substantial enough when you consider the value of the tax exemptions.”
Less free care
The spending can include the costs of providing free care to uninsured or underinsured patients as well as spending to improve the health of the community. But an increasing chunk of the community benefit reflects the shortfall when public plans like Medicaid don’t cover the hospital’s cost of providing care. While the IRS does not allow hospitals to claim Medicare shortfall as community benefit spending, many states, including Oregon, do.
The OHA report found that Oregon hospitals provided $1.9 billion in total community benefit in 2015, up slightly from $1.89 billion in 2013.
According to the Oregon Health Insurance Survey, 14.5 percent of Oregonians were uninsured in 2013, the year before the ACA went into effect. But the health law provided subsidies for individuals to buy insurance and expanded the Medicaid program, so by 2015, that rate had fallen to 5.3 percent.
With fewer uninsured patients, demand for charity care dropped from $383 million in 2013 to $157 million in 2015. But more patients were covered by the Oregon Health Plan, so unreimbursed Medicaid costs grew from $422 million in 2013, to $634 million in 2015, offsetting all of the charity care savings. Direct spending for community health improvement ticked down slightly from $33.9 million in 2013, to $31 million in 2015.
Unreimbursed Medicare and Medicaid are steadily eating up a larger percentage of the total, accounting for 59 percent of community health benefit spent in Oregon in 2013, but consuming more than 70 percent in 2015.
That same trend is occurring with Medicaid on the national level, but perhaps not to the extent it is in Oregon.
“It’s shifting from financial assistance into Medicaid shortfall,” said Sara Rosenbaum, chair of the department of health policy at The George Washington University Milken Institute School of Public Health. “It’s not going up remotely as much as … their uninsured numbers are going down. So for hospitals to be saying ‘Oh, no. It’s all accounted for in this shortfall’ is not correct.”
Oregon hospitals pledged in 2015 to maintain their overall community benefit levels, despite the expected drop in charity care, and announced a voluntary expansion to provide free care for individuals up to 200 percent of the federal poverty level.
The Oregon Association of Hospitals and Health Systems released a statement on the spending report touting the community benefit spending as a 1 percent increase from 2014 despite the drop in need for charity care.
“No other state in the nation has a more proactive approach by hospitals to provide core community benefit at the local level,” Andy Davidson, the group’s president and CEO, said. “We are extremely proud of the findings in the OHA’s report and are committed to ongoing policy discussions this legislative session around how we continue to provide this critical community benefit across our entire state.”
But Oregon hospital revenues under the ACA have risen even faster. In 2013, Oregon hospitals allocated about 9.5 percent of their total revenues to community benefit, but only 8 percent in 2015. At the same time, hospital operating margins have risen steadily, from 3.6 percent in 2013, to 6.7 percent in 2015.
St. Charles Bend reported $101 million in community benefit in 2015, up from $84 million in 2011. Most of the hospital’s total was from unreimbursed Medicare and Medicaid costs. Medicare shortfall for the hospital came in at $54 million in 2015, double the $27 million it recorded just four years earlier. The Medicaid shortfall dropped from $43 million in 2011 and $61 million in 2013 to just $35 million in 2015.
Charity care at the hospital dropped from $11 million in 2011 to $3.7 million in 2015, while community health improvement costs rose from $433,000 to more than $1 million in 2015.
Jennifer Welander, chief financial officer for the St. Charles Health System, said Medicare spending has risen so quickly due to the demographic trends in Central Oregon, which is an increasingly popular retirement destination. Combined with the addition of new family practice clinics and the hiring of more physicians by the hospital system, it’s boosted the number of services provided to Medicare beneficiaries.
The hospital’s Medicaid shortfall went down — contrary to statewide trends — mainly because of incentive payments the hospital earned from the state for meeting quality improvement metrics. Due to the delay in calculating those metrics, the funds were not credited to St. Charles until 2015.
There’s no federal or state requirement for hospitals to provide a certain dollar amount or percentage of revenues in community benefits. That’s left many pondering whether hospitals are doing enough and prompted lawmakers to include a provision in the ACA requiring hospitals to perform a community health needs assessment every three years.
“What the ACA has done is allowed us to be more strategic in our investments, because we understand the needs of the patients better,” Welander said.
The hospital’s community health needs assessment found that access was a particular issue, and invested heavily in new family practice clinics in Bend, Madras and La Pine, and started a major expansion of the hospital to add more patient beds.
“That supports the community for the long term, but through the lens of how the state defines it, those investments don’t count today.”
Although 2016 numbers have not been finalized, Welander said preliminary estimates suggest that charity care spending has remained flat, while bad debt amounts are rising as more individuals have high deductible health plans and many not be able to afford to pay. The hospital is working on ways to make the eligibility determination for charity care faster to ensure patients understand when they qualify, and to let people who are underinsured know they too might be eligible for financial help. In 2011, 9 percent of covered workers in the U.S. were enrolled in high-deductible plans. By 2015, that rate was up to 19 percent.
Young said his center will soon report on the changes in community benefit spending to see whether hospitals are banking the benefits of lower uncompensated care costs or shifting them towards other charitable purposes.
“The ACA embraces the principle that we need a shift in the country from a focus on treatment of illness to preventing illness and promoting community health,” Young said. “If there is a finding that hospitals in fact did see a decline in demand for charity care and actually cut back their spending on community health benefits as they reallocated those dollars, I think you’re going to see a public backlash.”
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