Presentation on Issue Related to Uncompensated Care
COMMITTEE ON HEALTH CARE EXCHANGE
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09:37 AM -- Presentation on Issues Related to Uncompensated Care
Amy Downs, Colorado Health Institute (CHI) and Edmond Toy, CHI, came to the table and provided a handout to the committee (Attachment C). Mr. Toy discussed the recent expansion of Colorado's Medicaid program. He explained that uncompensated care is care for which neither a patient nor an insurer pays for the services provided. He pointed out that undercompensated care is care for which the reimbursement rate does not cover the full cost of the care. Mr. Toy explained that hospitals often receive funding from government sources to help offset the costs associated with uncompensated care. He told the committee that between 2009 to 2013 Colorado hospitals provided about $700 million in uncompensated care annually. He stated that about two-thirds of uncompensated care was covered by government payments. Mr. Toy pointed out that the amount of uncompensated care provided by Colorado hospitals in 2014 was just over $300 million.
Ms. Downs discussed the issue of cost shifting. She explained that cost shifting is the theory that inadequate reimbursements by certain payers forces providers to recoup losses by charging higher prices to other payers. She stated that many economists do not support the idea that hospitals shift the cost of uncompensated care to those who pay, but rather hospitals charge the price that commercial insurance companies are willing to pay. She discussed how this practice was a form of price discrimination, meaning that hospitals charge different prices to patients based on their willingness to pay.
Referring to slide 7 of the handout, Ms. Downs explained that in 2013 the uncompensated care provided by hospitals equaled 2.3 percent of private insurance spending and that, in Colorado in 2013, hospitals provided $700 million in uncompensated care which is equal to approximately 4 percent of the state's private insurance spending. Committee discussion followed about the amount of uncompensated care in previous years and the amount of reimbursement hospitals receive from different sources.
Committee discussion continued about uncompensated care. Senator Aguilar referenced an article from the Denver Business Journal titled 2016 Hospitals by Uncompensated Care (bizjournals.com/denver/subscriber-only/2016/07/22/hospitals-by-uncompensated-care.html) regarding the amount of uncompensated care provided by Colorado hospitals in 2015.
Ms. Downs continued her presentation. She discussed how the payment-to-cost ratio for inpatient admissions has changed over time. She explained that both the payments hospitals receive for inpatient care and the cost of the care have increased. In response to questions from the committee, Ms. Downs pointed out that commercial insurers pay approximately 159 percent of the cost of care compared to care reimbursed by Medicaid which pays about 72 percent of the cost of care. She explained that the financial experience of each hospital varies and is dependent on payer mix and occupancy rate.
Ms. Downs spoke about the factors that can drive cost increases in hospitals including, patient complexity, intensity of utilization, technology, administration, and capital construction. Committee discussion followed about payment-to-cost ratios and the cost of providing care to Medicare patients. Committee discussion followed about Medicare reimbursement rates. Ms. Downs concluded by stating the CHI asserts that there is mixed evidence that a cost shift exists in hospital markets, that compared with private health insurance spending the amount of uncompensated care is relatively small, and since passage of the Patient Protection and Affordable Care Act (PPACA), both payments to hospitals and the cost of care have increased.
Chris Tholen, Colorado Hospital Association, provided a handout to the committee (Attachment D). He explained that the cost of health care is related to utilization, the number of items provided, and the cost of the items. He told the committee that Colorado spends less per capita on health care than the national average and comparable states. He stated that cost shifting does occur in hospitals and discussed the issues around cost shifting.
Mr. Tholen continued his presentation and stated that the cost of charity care is determined by the cost of providing the care. He stated that undercompensated care affects the cost of private insurance more than uncompensated care. Discussion followed about the cost of care provided by hospitals. He stated that the cost of care includes the cost of using all of the resources available in a hospital. He stated that uncompensated care has been reduced, but undercompensated care has increased due to more people being covered by Medicaid or private insurance. Committee discussion followed about bundled payments and fee-for-service payments to hospitals by insurance companies.
Mr. Tholen pointed out that if Medicare uses bundled payments there will be an escalation of bundled payments by commercial insurer since commercial insurers often follow the lead of Medicare. The committee members discussed bundled payments, third-party payers, fee for service payments, and policies for reducing utilization in a effort to reduce the cost of care. Mr. Tholen pointed out that the best way to reduce cost is to ensure that chronic conditions do not become acute conditions. The committee discussed challenges faced by rural hospitals including the inability of some rural hospitals in Colorado to offer maternity care since the high cost of this care can limit a hospital's ability to offer other types of care.
The committee discussed hospitals offering quality care and marketing on service quality. Committee discussion followed about the process of hospitals and insurers negotiating reimbursement rates using the chargemaster, i.e. a list of the official rate charged by a hospital for procedures, services, and goods.