Missouri Foundation for Health
Charity Care at Missouri Hospitals
2004 – 2006
Prepared by the St. Louis Area Business Health Coalition
for the Missouri Foundation for Health
Table of Contents
Phase III Report
Introduction . . . 4 Executive Summary . . . 5 Section I . . . 7 Section II . . . 26 Endnotes . . . 29 Appendices . . . 30
Phase III Appendix A 2006 Public Program Utilization . . . 31
2005 Emergency Department Use profile . . . 32
2006 Emergency Department Use profile . . . 33
Emergency Department Use by Payer 2005 – 2006 . . . 34
SSM Health Care ED Use by Payer and Visit Type . . . 34
2006 Charity Care Profile . . . 35
Charity Care as a Percentage of Operating Revenue 2004 – 2006 . . . 36
2006 Bad Debt Profile . . . 37
Bad Debt as a Percentage of Operating Revenue 2004 – 2006 . . . 38
Uncompensated Care as a Percentage of Operating Expense 2004 – 2006 . . . 39
Fiscal Year 2006 Financial Data . . . 40
Operating Margin Trends 2004 – 2006 . . . 41
Profit Margin Trends 2004 – 2006 . . . 42
Total Reserves and Debt-to-Equity Ratios 2004 – 2006 . . . 43
2006 Capacity Levels and Productivity . . . 44
Phase III Appendix B Methodology and Data Sources . . . 45
Charity Care Cost Differences, BHF and MHA . . . 47
Glossary . . . 49
Phase III Appendix C Emergency Department Use Rates . . . 50 – 52
Previous Reports
. . . 53Phase I Baseline Report . . . 54
Phase I Appendix A . . . . 61, 63, 65, 67, 69 Phase I Appendix B . . . . 45 – 49 Phase II Report . . . 56 Phase II Appendix A . . . 61 – 70 Phase II Appendix B . . . . 45 – 49
Acknowledgements
BHF would like to acknowledge the hospital representatives who voluntarily provided BHF with financial and utilization information . Hospital representatives and their staff worked extensively with BHF to verify the accuracy of the data . The additional time and effort they spent analyzing and verifying the data was invaluable to the success of this project .
BHF would also like to acknowledge the assistance of the following individuals at the Missouri Department of Health and Senior Services for providing certain data, analysis, recommendations or consultation: Susan Elder, Bureau Chief of Health Informatics, and Alice Kempker, Research Analyst .
BHF especially thanks staff member Melanie Watson, Project Assistant, for her important contribution in verifying the accuracy of the data entered in the body of the report and the numerous tables in the Appendix . BHF would also like to thank the Missouri Foundation for Health, the St . Louis Area Business Health Coalition, and other St . Louis organizations that provided funding to the BHC Foundation (BHF) to make this project possible .
Introduction
In 2005, the Missouri legislature approved significant cuts to the state’s Medicaid program . While many studies have examined the effect of those cuts on the newly uninsured, there has been less research on how this loss of coverage impacted hospitals . This project examines whether hospitals suffered an increased financial burden, how hospital utilization patterns changed, and the ability of one hospital to meet the challenge with an innovative strategy to improve service to the uninsured in its area .
Findings
Hospitals provided more uncompensated care, as defined by charity care and bad debt, following the Medicaid cuts . However, for most hospitals, this increase did not significantly jeopardize the institution’s overall financial health .
Hospital utilization patterns changed with more patients seeking care from the emergency department . While this increase in emergency department usage was most pronounced among the uninsured, it occurred across payors .
For a few Missouri hospitals, many of which already faced high levels of charity care and bad debt, the Medicaid cuts resulted in significant financial hardship . One hospital’s challenges are explored in this report .
Data Limitations
To measure the impact of the 2005 Medicaid cuts for this project, the Business Health Coalition (BHF) reviewed data from 2004 to 2006 for 41 hospitals in 10 counties and the St . Louis
metropolitan area in Missouri (referred to as “study hospitals”) . There were a number of limitations encountered related to data availability and the narrow data timeframe that made absolute statements about impacts and trends difficult . Some important examples of those
limitations are noted below, as well as in appropriate sections of the report, and in the conclusion . For example, the lack of data prior to 2004 does not allow an understanding of normal year-to-year fluctuations in the level of charity care and bad debt over a longer period of time, and coupled with the lack of data related to hospital-specific care for the uninsured; it makes it difficult to determine the significance of annual increases in charity care and bad debt . Also, the number of uninsured in a geographic area can be affected by many factors, such as the loss of an employer, in addition to reductions in Medicaid eligibility .
Analysis of emergency department (ED) data were particularly challenging due to:
• Gaps in data availability: Estimates of emergent and urgent ED visits were not available for some hospitals . Although aggregate percentages of emergent and urgent ED visits were adjusted for missing data, comparisons of year-to-year results must be made with those limitations in mind .
• A lack of common standards in ED research and reporting: The method used in this report to define emergent and urgent (non-emergent) ED utilization was developed by ThomsonReuters Solucient (TR) . One must use care when evaluating the results since the method used in this report may differ from other methods .
Please read the appendices to become familiar with the technical discussion while reviewing or interpreting the data in this report .
Executive Summary
More Missouri families joined the ranks of the uninsured in 2006 . The percentage increased from 13 .6 percent in 2004 to 15 .3 percent in 2006, primarily from the loss of Medicaid and SCHIP coverage and to a lesser extent from the loss of employer-sponsored coverage . The percentage of uninsured in low income families increased the most from 25 .3 percent in 2004 to 28 .2 percent in 2006 .
Rising Charity Care, Bad Debt
Charity care at study hospitals increased from $73 .8 million in 2005 to $113 .8 million in 2006 . Aggregate hospital charity care accounted for 1 .3 percent of total operating revenue in 2006, up from 0 .9 percent in 2005 . Charity care has grown steadily since 2004 . Variation was dramatic across hospitals and some, but not all, could be explained by race and income disparities in hospital service areas . About 44 percent of the hospitals provided charity care as a percentage of operating revenue in the low range, from 0 – 1 percent . About 46 percent provided charity care in the mid-range, from 1 – 2 percent . Only 10 percent provided charity care in the highest range, at or above 2 percent of operating revenue . Clearly, the charity care burden is not spread equally within regions or across the state .
Bad debt expense at study hospitals jumped in 2006 to $219 million, up from $163 .8 million the prior year . Hospital bad debt expense accounted for 2 .5 percent of operating revenue, up from 2 percent in 2005 . Since 2004, bad debt has grown, and overall, continues to outpace reported charity care by more than 50 percent . Interestingly, hospitals reporting the lowest charity care, reported high and rising amounts of bad debt . Designating services as bad debt rather than charity care previously gave hospitals the opportunity to collect on past due accounts or sell them to a financial services company . Yet those incentives are changing .
Reporting Policies in Transition
Recent controversy over non-profit hospitals’ tax-exempt status has resulted in revised charity care and bad debt policies, especially for large urban hospitals . Many now utilize better methods to determine upon admission if a patient qualifies for charity care . At the same time, some hospitals have adopted more conservative bad debt classification methods or moved expenses initially accounted for as bad debt to charity care . Since policies and practices related to charity care and bad debt are in flux, it is difficult to evaluate the significance of large, year-to-year changes . Variation in reporting is expected to diminish in 2009 when non-profit hospitals transition to new Internal Revenue Service guidelines for community benefit reporting . Hospital Utilization Patterns Change
In Missouri, more patients sought care in the ED in 2006 increasing 7 percent from 2004 . Uninsured ED visits sustained the largest increase of any group during the period of 28 percent . The insured
used the ED the most at 36 percent, followed by Medicaid at 28 percent, the uninsured at 16 percent, and Medicare at 15 percent in 2006 . The change in overall hospital discharges was relatively flat for all payors during the period with the exception of the uninsured that increased 23 percent . On average, uninsured discharges represented only a small portion (5%) of all discharges at Missouri hospitals in 2006 .1
Patients had more than twice as many urgent (non-emergent) care visits to the ED as compared to emergent care visits for study hospitals during the most recent years available, 2005 and 2006 . Medicaid urgent and emergent ED use fell slightly in 2006 while uninsured use of the same services increased .
The Haves, The Have Nots
Aggregate financial results for study hospitals from 2004 to 2006 were relatively stable .
Although average operating and profit margins dipped slightly in 2005, they recovered in 2006 to about the same level as 2004, and generally outperformed Missouri and national averages .2
Urban hospitals typically fared better than rural hospitals . Though most were profitable, charity care and bad debt increases from 2004 to 2006 contributed to a rise in expenses that resulted in serious financial pressure for certain hospitals and regions (see pages 22 – 26) .
Audrain Medical Center in Audrain County was profoundly affected by the loss of a large local employer in the last 10 years . The 2005 Medicaid cuts caused further sharp increases in uncompensated care . Despite these challenges, Audrain has made significant long-term investments to better cope with the increase in the number of uninsured seeking care . Audrain’s story is explored on page 27 .
This study sheds more light on the effects of the 2005 Medicaid cuts on the level of
uncompensated care at study hospitals from 2004 to 2006 . During the period, uncompensated care rose and remained unevenly distributed . Yet, on average, Missouri hospitals’
uncompensated care burdens were relatively low . Meanwhile, hospital policies related to classifying uncompensated care were in transition . Most of the hospitals were financially stable through 2006 . Increases in uncompensated care from lower Medicaid enrollment and the weakening economy are expected to put more financial pressure on hospitals in 2007 and 2008 .
Section I
This project was commissioned by the Missouri Foundation for Health (MFH) to measure the impact of the 2005 Medicaid cuts on the level of charity care and bad debt expense for 41 hospitals in 10 Missouri counties and the St . Louis metropolitan area (referred to as “study hospitals”) . In the first two years, baseline and comparative financial, utilization, charity care and bad debt statistics were provided for fiscal years 2004 and 2005 (see Phase I and II reports, Appendix A and B) . Following this, the scope of the project was expanded to highlight additional research and analysis related to the changes in utilization resulting from the Medicaid cuts . First, since the uninsured frequently use the hospital ED for primary care, ED utilization by hospital is provided to more fully understand the patterns of urgent (non-emergent) use of the ED . Second, Section II provides the results of research conducted by the Business Health Foundation (BHF) to learn more about hospitals’ efforts to cope with the Medicaid cuts and improve service to the uninsured in their geographic areas .
Uninsured Increase in Missouri
As reported in a research article published recently in Health Affairs, more Missouri families joined the ranks of the uninsured in 2006 as a result of Medicaid eligibility reductions by the Missouri General Assembly in 2005 and the loss of employer-sponsored health insurance coverage .3 The following points highlight the study’s findings and the table in Exhibit 1 below
regarding the distribution of health insurance coverage by age and income before and after the Medicaid cuts:
• In 2006, the year immediately following the Medicaid cuts, the number of uninsured people rose 103,500 causing the percentage to rise from 13 .6 percent in 2004 to 15 .3 percent in 2006 . • Medicaid and SCHIP coverage for Missouri families fell at twice the rate of
employer-sponsored coverage, from 12 .7 percent in 2004 to 9 .8 percent in 2006 .
• The percentage of low income uninsured families increased the most from 25 .3 percent in 2004 to 28 .2 percent in 2006 . The increase in low-income uninsured would have been higher except for gains in other types of insurance coverage .
Exhibit 1: Health Insurance Coverage Distribution Among the Nonelderly Population in Missouri, by Age and Health Insurance Unit Income, 2004 – 20064
All nonelderly Adults Children
Coverage distribution within
income category Change %
Coverage distribution within
income category Change %
Coverage distribution within
income category Change %
2004 2006 2004 2006 2004 2006
All incomes (millions) 4.9 5.0 3.4 3.6 1.5 1.5
Employer 66.2% 64.9% -1.3 67.1% 66.3% -0.8 64.3% 61.7% -2.6 Medicaid/State(SCHIP) 12.7 9.8 -2.8** 8.2 4.9 -3.2** 22.9 21.6 -1.3 TRICARE/Medicare 2.0 2.9 0.9 2.6 3.9 1.3* 0.7 0.6 -0.1 Private nongroup 5.5 7.1 1.5* 5.9 7.1 1.2 4.6 7.0 2.4* Uninsured 13.6 15.3 1.7 16.2 17.8 1.6 7.5 9.1 1.6 Less than 200% of poverty (millions) 1.6 1.8 1.0 1.1 0.6 0.7 Employer 31.3% 33.7% 2.5 31.0% 31.3% 0.4 31.8% 37.9% 6.0 Medicaid/State(SCHIP) 33.1 24.2 -8.9** 23.3 14.8 -8.5** 50.2 40.5 -9.7** TRICARE/Medicare 3.6 5.4 1.8 5.8 8.4 2.6 0.0 0.4 0.4 Private nongroup 6.7 8.4 1.8 8.1 9.8 1.7 4.3 6.2 1.9 Uninsured 25.3 28.2 2.9 31.9 35.7 3.8 13.7 15.1 1.4 200% of poverty or more (millions) 3.3 3.2 2.4 2.4 0.9 0.8 Employer 83.3% 81.9% -1.4 82.5% 82.4% -0.1 85.6% 80.5% -5.1% Medicaid/State(SCHIP) 2.6 2.0 -0.6 1.7 0.4 -1.3** 5.0 6.7 1.7 TRICARE/Medicare 1.3 1.6 0.3 1.3 1.8 0.5 1.2 0.8 -0.4 Private nongroup 5.0 6.3 1.4 5.0 5.9 0.8 4.8 7.7 2.9 Uninsured 7.8 8.2 0.4 9.5 9.6 0.1 3.5 4.3 0.8
Source: Urban Institute, 2007, based on data from 2005 and 2007 Annual Social and Economic Supplement to the Current Population Survey . Notes: Excludes people age 65 and older and people in the armed forces . A health insurance unit is those eligible as a group for family coverage in a health plan .
Uninsured Discharges Increase in Missouri
MHA Hospital Inpatient Discharges, All Missouri Hospitals
0 50 100 150 200 250 300 350 400
Medicare Medicaid Commercial Other Self Pay
(Uninsured) 2004 2006
Source: S . Zuckerman, D .M . Miller, E .S . Pape, “Missouri’s 2005 Medicaid Cuts: How Did They Affect Providers?,” Health Affairs, 28, no . 2 (2009): w 341 . Urban Institute estimates based on data from the Missouri Hospital Association (MHA) .
It is important to look at hospital utilization by payer type to understand whether the increases in uninsured are driving changes in inpatient care . Medicaid discharges were expected to fall . However, they increased slightly based on data for all Missouri hospitals from the Missouri Hospital Association (MHA) shown in the chart above . Given those results and the increase in uninsured discharges shown in the chart, it is interesting to draw a parallel with the study hospitals shown in Exhibit 2 on page four that presents data by payer type and county based on Medicare Cost Report data (MCR) .
Exhibit 2 shows the change in utilization for the study hospitals both before and after the
Medicaid cuts . Utilization by payer varied significantly by hospital and region . When looking at the change in “Aggregate” utilization from 2004 to 2006, highlights include:
• Medicaid patient days and discharges declined (8%) and (4%) respectively,
• MCR data does not report uninsured separately . The “Other” category is comprised of commercial insurance, other programs (e .g . workers compensation), self-pay, and uninsured utilization . “Other” days and discharges rose 4 percent and 5 percent respectively, and, since uninsured utilization is included, one can infer that part of the increase represents uninsured days and discharges .
Self-pay (uninsured) discharges increased 23% Medicare & Medicaid discharges increased slightly at 2% Commercially insured discharges were relatively unchanged (i n t ho us an ds )
Hospital Utilization Pattterns Change
Greene County had the largest decline in Medicaid where patient days fell (20%) . Medicaid patient days fell at all three hospitals in Greene County; Cox Health Systems (22%), St . John’s Regional Health Center (19%), and Ozarks Community Hospital (10%) . Aggregate Medicaid utilization decreased in the St . Louis region, though Medicaid admissions increased at the two largest hospital systems, BJC HealthCare and SSM Health Care . Closure of Forest Park Hospital’s obstetrics practice and expansion of the Illinois Medicaid program may partially explain the increases at BJC and SSM .
Exhibit 2: Percentage Change in Medicare, Medicaid, Other, and Total Utilization 2004 – 2006
Missouri Hospitals Medicare Utilization % Change 2004 – 2006 Medicaid Utilization % Change 2004 – 2006 Other Utilization % Change 2004 – 2006 Total Utilization % Change 2004 – 2006
Days Discharge Days Discharge Days Discharge Days Discharge
Adair -1% -2% 15% -5% 15% -6% 4% -3% Audrain -7% -1% 5% -5% 19% -16% 1% -8% Boone 9% 12% 1% 7% 14% 22% 10% 16% Callaway* 28% 38% -36%* 90%* 7% 63% 16% 49% Cape Girardeau -4% -1% 1% -11% 13% 7% 1% 0% Cole -8% 2% 7% 36% -4% -4% -5% 1% Greene -6% -4% -20% -3% 16% 3% -1% -1% Marion -11% -9% 10% 6% -12% -3% -9% -5% Perry -6% -19% -9% -27% 16% -25% -3% -23% Polk -12% -7% -3% 11% 44% 7% 1% 1% St. Louis MSA** 0% 2% -7% -6% 1% 5% -1% 2% Aggregate -1% 2% -8% -4% 4% 5% 0% 2%
* Medicare & Medicaid utilization unavailable for 2004 . Percent change was based on 2005 and 2006 utilization . Low percentages of Medicaid days and discharges at 4% and 6% respectively in 2006 skewed the results . Medicaid days fell from 324 in 2005 to 206 in 2006 . Medicaid discharges increased from 39 in 2005 to 74 in 2006 .
** St . Louis Metropolitan Statistical Area (MSA) figures include only Missouri hospitals for this report .
Uninsured Emergency Department Visits Increase
ED visits in Missouri increased by more than 167,000, or 7 percent, from 2004 to 2006 based on MHA data . The majority of ED visits were among Medicaid and the commercially insured . While the number of ED visits covered by Medicaid fell by 30,000, there was a steep and significant increase in ED visits among those without insurance of almost 85,000 (see graph on page 12) . One of the most surprising findings from these data was that ED visits covered by Medicare increased by more than 55,000 and those covered by Commercial insurance increased by almost 57,000 from 2004 to 2006 . Were most of those visits for emergent or urgent (non-emergent) care? This question will be explored in more depth in the following section .
MHA Emergency Department Visits, All Missouri Hospitals, Fiscal Years 2004 – 2006 0 100 200 300 400 500 600 700 800 900
Medicare Medicaid Commercial Other Self Pay (Uninsured) (i n t h ou s a n d s ) 2004 2006
Source: S . Zuckerman, D .M . Miller, E .S . Pape, “Missouri’s 2005 Medicaid Cuts: How Did They Affect Providers?,” Health Affairs, 28, no . 2 (2009): w 341 . Urban Institute estimates based on data from the Missouri Hospital Association .
Most Emergency Department Visits Were Not Emergent
The majority of ED visits in the United States and for study hospitals were for urgent rather than emergent care . The average percentage of urgent ED visits in U .S . hospitals was approximately 58 percent .5 Based on data submitted by study hospitals and estimates provided by ThomsonReuters
Solucient (see pages 52 – 54), the average percentage of urgent ED visits for the study hospitals exceeded the U .S . average at 70 percent in 2005 and 64 percent in 2006 (see graph on page 14) . For the study hospitals, the percentage of emergent and urgent visits to the ED did not appear to follow any particular pattern . Hospitals located in urban areas had similar distributions of emergent and urgent visits as hospitals in rural areas . Also, the relative size of the hospital or the complexity of the inpatient care they provide, such as care at academic medical centers or tertiary care hospitals, did not seem to have an effect on the percentage of emergent and urgent visits . A leading cause of urgent ED use is poor access to primary care providers . In the United States, the number of physicians entering primary care residency programs has declined steadily since 1995 . The shortage of primary care physicians became particularly problematic with universal health care coverage in Massachusetts . One of the unintended consequences was that the newly insured were unable to find primary care physicians that were open to adding new patients to their practices . For those patients fortunate enough to find a doctor, some were put on year-long waiting lists for an appointment . A recent report published in the Boston Globe indicates ED visits in Massachusetts grew 7 percent from 2005 to 2007 and the percentage of visits in which a patient did not require immediate treatment or could have been treated in a doctor’s office remained constant at 47 percent .6
Self-pay (uninsured) emergency department (ED) visits increased 28% Medicare ED visits increased 18% Commercially insured ED visits increased 7% Medicaid ED visits decreased 4%
A well-recognized study published in the Annals of Emergency Medicine in 2008 found that the biggest proportional increases in ED use were among higher income people (equal to or greater than 400 percent of the federal poverty level) and people whose regular source of care was a doctor’s office .7 While it is true that increasing numbers of the uninsured are going to the ED
for care, they are not the primary cause of the increase in ED use or overcrowding .8 While not
the focus of this report, it would be interesting to understand the relationship between urgent ED use and the shortage of primary care physicians in the community and how it affects access to care for everyone, including the uninsured .
The data in the graph below provide an early look at emergent and urgent use of the ED in 2005 and 2006 by region for study hospitals . One must use caution when viewing these results given that certain hospitals did not provide their emergent and urgent ED visit data for each year and this may affect the averages (see page 32) . Also, there are currently no common standards for ED research and reporting . Thus, the procedure code method developed by ThomsonReuters Solucient (TR) to define emergent and urgent ED visits for this report (see Appendix E) may produce results that differ from other methods .
Urgent use of the ED was substantially higher than emergent ED use in both years and total ED visits rose in 2006 in most regions . The average percentages for urgent ED visits of 70 percent in 2005 and 64 percent in 2006 for hospitals in this study may appear high as compared to percentage estimates of urgent ED use cited in other well-recognized national and local studies due to methodological differences . For example, one widely-accepted method developed by John Billings, MD at New York University uses a patient’s primary diagnosis code at discharge to apportion ED visits into five emergent and non-emergent categories .9 A national study
conducted by George Washington University researchers using the Billings algorithm resulted in a 21 .4 percent rate of non-emergent ED use .10 In a recent St . Louis area study by the St . Louis
Regional Health Commission (RHC), non-emergent ED use for 2006 was estimated at 34 percent . The RHC method requests hospitals report triage-level ED data instead of billing or procedure code data . Non-emergent ED visits are defined by the two lowest acuity triage levels .11
Callaway County had the highest percentage of urgent ED use in 2006 . Audrain and Greene counties had the largest percentage increases in urgent ED visits from 2005 to 2006 . Urgent ED visits fell for most of the other regions including the St . Louis area in 2006 . Statistics for individual study hospitals within each region are listed on page 32 .
Emergency department visits by payer (i .e ., Medicare, Medicaid, Commercial, and Self Pay/ Uninsured) were unavailable for most study hospitals for 2005 and 2006 except for St . Louis hospitals within the BJC HealthCare and SSM Health Care systems . Commercial and Medicaid ED visits fell slightly at BJC and SSM with a corresponding rise in ED visits for self pay/
uninsured patients . Medicare ED visits were unchanged for both systems . SSM provided further detail for emergent and urgent ED visits by payer . At SSM, commercial and Medicaid emergent and urgent ED visits fell while Medicare results were mixed . Self pay/uninsured emergent and urgent ED visits rose 31 percent and 34 percent respectively in 2006 (see page 35) .
Emergent and Urgent Emergency Department Visits by Region, 2005 - 2006 0% 20% 40% 60% 80% 100% 2005 Emergent 2006 Emergent 2005 Urgent 2006 Urgent 2005 Emergent 10% 5% 26% 25% 28% 18% 29% 30% 28% 33% 4% 2006 Emergent 43% 42% 38% 30% 24% 22% 18% 2005 Urgent 90% 95% 74% 75% 72% 82% 71% 70% 72% 67% 96% 2006 Urgent 57% 58% 62% 70% 76% 78% 82%
Adair (est)1 Marion (est)1 Perry (est)1 Polk (est)1 Cape Girardeau (est)1 Cole (est)1 St. Louis Metro (est)1,2 Boone (est)1 Greene (est)1 Audrain Callaway
2005 Urgent ED Visit Average = 70%
2006 Urgent ED Visit Average
= 64%
1 Source: Emergency department (ED) visits self-reported by hospital for 2005 & 2006 unless noted otherwise & were not audited . For a complete listing by hospital, see Appendix C, p .33 – 34 . The 2005 source for non-reporting hospitals was ThomsonReuters (TR) Solucient Market Planner® Plus Outpatient Profiles and are denoted with an (est .*)1 . Estimated ED visit data for 2006 were not available from TR Solucient for those hospitals . For a description of TR Solucient methodology, see pages 52 – 54 .
2 St . Louis Metro area figures include only Missouri hospitals for this report . BJC hospitals in Boone county & St . Louis Metro did not provide their volume of emergent and urgent ED visits . Cox Health System and Citizens Memorial in Greene and Polk counties respectively did not provide their volume of emergent and urgent ED visits in 2006 .
These data seem to support anecdotal evidence that the 2005 reductions in Medicaid have led to increasing numbers of uninsured seeking care in the ED . Unfortunately, the lack of data prior to 2005 that would allow comparison of normal year-to-year fluctuations in emergent and urgent ED use along with data limitations related to hospital-specific ED utilization by payer make it difficult to draw firm conclusions . Further analysis of hospital-specific emergent and urgent ED utilization by payer in 2007 and beyond is needed to better understand the full impact of the 2005 Medicaid reductions .
Regional Snapshots
As part of the study, hospitals were asked to describe the effects of the 2005 reductions in
Medicaid eligibility on their numbers Medicaid and uninsured patients . The following hospitals provided information and narrative descriptions of the impact on their hospital: Audrain
Medical Center in (Mexico, MO) Audrain County, and Cox Health System, Ozarks Community Hospital, and St . John’s Regional Health Center in (Springfield, MO) Greene County . Information on St . Louis metropolitan area hospitals is supported by reports from the St . Louis Regional Health Commission (RHC) .
Audrain County
Audrain Medical Center (AMC) is a community safety net hospital that has seen a record
number of visits to its ED since the Medicaid cuts became effective . In a letter from the President and CEO of Audrain Medical Center, David Neuendorf reports, “Regarding the impact of the 2005 Medicaid cuts on Audrain Medical Center I can only think of one descriptive word, ‘devastating’ . The surge in uninsured not only placed a heavy financial burden on the hospital, but also extended waiting times for other patients seeking care in the ED and overwhelmed hospital staff” . More information on this hospital is provided in Section II of this report . Greene County
Cox Health Systems (CHS) reported a significant increase in the amount of care provided to the underserved . More than 65 percent of 2006 neonatal ICU discharges at CHS were Medicaid and uninsured . CHS provides access to primary care through its Federally
Designated Rural Health Clinics . Although CHS’s charity care in 2006 was the second highest in Greene County at $6 .5 million or, 0 .95 percent of operating revenue, it was below the average for study hospitals of 1 .3 percent . Bad debt was the highest in the county at $23 .7 million or, 3 .42 percent of operating revenue .
In a position paper from the CEO of Ozarks Community Hospital (OCH), Paul Taylor reports, “Before the Medicaid program was reformed in 2006 by reducing the number of covered beneficiaries state-wide and entirely eliminating certain benefits such as physical therapy and wound care, over 40 percent of our patients were covered by Medicaid . Following the Medicaid reforms, the percentage of our patients covered by Medicaid declined dramatically and we saw a corresponding increase in the percentage of uninsured patients . By September 2006, the percentage of uninsured patients seeking treatment in our emergency room (ER) had climbed to more than 50 percent . At OCH, given the fact that a large percentage of our ER patients were uninsured, and in need of follow-up care by a primary care provider, we created a primary care follow-up clinic . While we did not offer the care free of charge, we did not require payment at the time of service and we billed for the services provided at a substantial discount .”
St . John’s Regional Health Center (SMHS) provided the largest amount of charity care in Greene County at $9 .3 million, or 1 .51 percent of operating revenue, and bad debt was the second highest in the county at $21 .5 million, or 3 .52 percent of operating revenue .
At the time this report was written, St . John’s provided a general description of a future plan to conduct a medical management demonstration project to provide access to health care for adults (18-64 years of age) that suffer from chronic disease and have annual household incomes equal to or below 150 percent of the Federal Poverty level . The demonstration project will be limited to a maximum of 25 patients per quarter and 100 per year . Patients will be eligible for this project if they have utilized St . John’s provider network or ED in the past . Patients will be required to apply for enrollment, and make co-payments for care . Specific details on the type or amount of any additional payments required of enrollees were not provided .
St . Louis City and County
Although volumes at some St . Louis hospitals increased significantly, the total number of hospital ED visits in St . Louis City and County remained constant between 2001 and 2006 . Barnes-Jewish, Christian, DePaul and St . Louis University hospitals accounted for 61 percent of all ED visits among uninsured and underinsured (Medicaid) adult populations . St . Louis
Children’s and Cardinal Glennon Children’s hospitals accounted for 66,000 uninsured and Medicaid ED visits in 2006 . Non-emergent ED visits increased 5 percent from 2001 to 2006 . In 2006, uninsured and Medicaid patients accounted for 17 percent and 36 percent of non-emergent ED visits respectively . 12
In 2007, uninsured ED visits at St . Louis area hospitals increased 6 .8 percent . Barnes-Jewish, Christian, St . Louis University, St . John’s Mercy Medical Center, DePaul, St . Anthony’s Medical Center, St . Mary’s Health Center, and St Alexius hospitals provided 90 percent of the ED visits for the uninsured . Total non-emergent ED visits remained relatively constant from 2006 to 2007 . Uninsured and Medicaid non-emergent ED visits also remained relatively constant from 2006 to 2007 .13
According to the RHC, the numbers of uninsured ED visits to St . Louis area hospitals would have been higher except for the efforts of the St . Louis Integrated Health Network (IHN) . IHN nurses work with the underserved seeking non-emergent care in hospital EDs . They have been able to significantly reduce non-emergent ED use by finding clinic appointments for underserved patients, sometimes the same day as the ED visit, and coordinating transportation if needed . This and other IHN efforts to coordinate primary/specialty care for the underserved has resulted in an increase in routine primary and preventive care visits of 23 percent from 2001 to 2006, and an additional increase of 3 percent in 2007 . The St . Louis County clinics and federally qualified health centers (FQHC) provided 70 percent of these visits with the other 30 percent provided by private clinics staffed by volunteer providers, private physician offices, and hospital-based clinics . Improving access to specialty care proved to be more challenging and wait times did not improve until 2007 . Despite these improvements, safety net care remains inadequate – FQHCs in St . Louis are underfunded $166 million each year according to a 2003 RHC report .
Coverage Matters
Research has shown that health insurance coverage provides substantial health benefits, especially for children . Well-child care and immunizations prevent future illness, serious health conditions are identified earlier, hospitalizations are avoided, asthma outcomes are better, and fewer days of school are missed . Adults benefit from clinical preventive services that detect treatable conditions earlier, effective management of chronic conditions result in better outcomes, and mortality is lower .14 Hospitalizations for heart disease, diabetes, and asthma –
chronic illnesses that can be controlled on an outpatient basis with adequate primary care – are common among the uninsured .15 The research is clear; health insurance coverage improves
the life of the average person in terms of health status, productivity, and longevity, and is a worthwhile investment for employers and the public .
Given the increase in Missouri’s uninsured, one would expect an increase in hospital charity care and bad debt expense, and in fact, that is the case . While it seems there is a direct
correlation between the rise in uninsured and uncompensated care, there are other factors that affect the amount reported . The level of uncompensated care at Missouri hospitals and the multiple factors affecting it will be considered in the following section .
What is Charity Care?
Accounting rules define charity care as health care services that are never expected to result in payment . Charity care has become a controversial issue since non-profit hospitals are expected to provide community benefit, including charity care, in exchange for their tax-exempt status . In contrast, for-profit hospitals have no such requirement since they fulfill their community obligation by paying taxes . To ensure public access to emergency services regardless of a patient’s ability to pay, both non-profit and for-profit hospitals are subject to a federal law, the Emergency Medical Treatment and Labor Act (EMTALA) .
How Is Charity Care Measured?
MHA Charity Care as a Percentage of Operating Revenue, Fiscal Years 2004 – 2006
0.00% 0.25% 0.50% 0.75% 1.00% 1.25% 1.50% 1.75% 2.00% 2004 2005 2006 2004 0.00% 0.04% 0.27% 0.58% 0.46% 0.69% 0.58% 1.04% 0.93% 2005 0.11% 0.00% 0.00% 0.00% 0.48% 0.47% 0.75% 1.05% 0.70% 1.02% 1.03% 2006 0.06% 0.11% 0.19% 0.61% 0.89% 0.96% 1.13% 1.19% 1.30% 1.47% Callaway Adair Perry Polk GirardeauCape Marion Cole Audrain Greene Boone St. Louis Metro
2006 Average
Note: MHA charity care reported at cost . The following hospitals did not report to MHA Focus on Hospitals: Callaway Community (Callaway) 2006, Citizens Memorial (Polk) 2004, Kindred (St . Louis Metro) 2005, Northeast Regional Medical Center (Adair) 2004, Ozarks Community (Greene) 2004 and 2005, and St . Joseph-Wentzville (St . Louis Metro) 2004 & 2005 . With the exception of Kindred Hospital, all hospitals reported charity care on MHA/AHA Annual Licensing Surveys (see BHC Charity Care, pages 32 – 45) .
According to guidelines issued by the Catholic Health Association (CHA), MHA and others, charity care should be reported at cost, not billed charges, and exclude bad debt and other expenses such as Medicare shortfalls . In addition, it is important to evaluate charity care amounts as a percentage of operating revenue and not in direct dollars . When reported as a percentage of revenue, meaningful comparisons of charity care can be made between hospitals, regions, and even other states .
Charity care cost at study hospitals increased from $73 .8 million in 2005 to $113 .8 million in 2006 . Aggregate hospital charity care accounted for an average of 1 .3 percent of operating revenue, up from 0 .9 percent in 2005, an increase of 43 percent . As illustrated in the chart above, charity care has increased steadily in most regions, a total of 57 percent since 2004 .
Charity Care Varies Yet Remains Low
The degree of variation in charity care was dramatic across hospitals in 2006 . Northeast Regional Medical Center in Adair County had the lowest percentage at 0 .06 percent and Missouri Baptist Hospital Sullivan, a rural BJC network hospital in the St . Louis Metro area, had the highest at 3 .2 percent . Approximately 44 percent of the hospitals provided charity care as a percentage of operating revenue in the low range, from 0 – 1 percent, and about 46 percent of them provided charity care in the mid-range, from 1 – 2 percent . Only four hospitals (10%) provided charity care in the highest range, at or above 2 percent of operating revenue .
The St . Louis metropolitan area, Boone, Greene, and Audrain reported aggregate charity care burdens above 1 percent of operating revenue in 2006 . Their average annual increases in charity care as a percentage of operating revenue from 2004 to 2006 were: Greene (52%), Audrain (31%), St . Louis metro (29%), and Boone (12%) . With the exception of Audrain County, each region had at least one academic medical center (AMC) .
It is interesting to note that two community hospitals, one urban and one rural, provided more charity care than the AMCs, Christian Hospital in St . Louis at 3 .1 percent and Missouri Baptist in Sullivan at 3 .2 percent . It is unclear why there is so much variation among hospitals whether they are rural, urban, non-academic or academic . Some, but not all, of the variation can be explained by race and income disparities in hospital service areas . Clearly the charity care burden is not spread equally within regions or across the state .
Another interesting observation is that counties having the lowest charity care, such as Adair and Polk, report high and rising amounts of bad debt (see chart below) . A past rationale for assigning services to bad debt rather than charity care might have been the opportunity to seek collection of past due accounts or to sell the bad debt to a financial service company . Yet, due to the controversy over non-profit hospitals’ tax-exempt status and the provision of charity care, those incentives are changing . Most of the larger hospitals have changed their charity care policies in recent years . Smaller, rural hospitals may decide at some point in the future to change their policies as well . Since policies and practices related to charity care are in a state of transition, it is difficult to evaluate the meaning of large changes in reported charity care from year to year .
Charity care amounts reported by BHF continue to be generally higher than MHA (see pages 32 – 45) . There is a slight methodological difference in the BHF and MHA methods (see pages 46 – 51 for detailed description of methods) . Despite the differences, for the past two years, BHF and MHA have reported similar amounts of charity care . This changed in 2006 when MHA reported charity care for BJC HealthCare system in St . Louis at a notably higher level than BHF reported .
According to BJC, during 2008 some of its hospitals’ 2006 bad debt was retroactively reclassified as charity care after collection efforts found that patients could not pay . Although other
hospitals in St . Louis and Missouri are facing similar issues, charity care amounts for most of them did not change . It is expected that this is a one year event . Many hospitals are now implementing methods to better determine if a patient qualifies for charity care upon admission .
Bad Debt Expense Growth Accelerates in 2006
MFH Bad Debt as a Percent of Operating Revenue, Fiscal Years 2004 – 2006
0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 2004 2005 2006 2004 8.88% 1.53% 1.69% 1.63% 1.61% 2.27% 2.56% 2.56% 2.58% 2.01% 2005 4.02% 1.99% 2.44% 1.77% 1.40% 2.54% 2.29% 2.76% 1.47% 3.10% 3.01% 2006 2.26% 2.30% 2.30% 2.35% 2.41% 2.66% 2.74% 2.75% 3.50% 4.33% Callaway Boone Audrain St. Louis Metro Cole Perry Marion GirardeauCape Adair Greene Polk
NR
2006 Average
Note: The following hospitals did not report bad debt expense to MHA Focus on Hospitals: Callaway Community (Callaway) 2006, Northeast Regional Medical Center (Adair) 2004, Ozarks Community (Greene) 2004 and 2005, and St . Joseph-Wentzville (St . Louis Metro) 2005 . With the exception of St . Joseph Hospital -Wentzville, all of them reported bad debt on MHA/AHA Annual Surveys for those years .
Bad debt expense at study hospitals jumped in 2006 to $219 million, up from $163 .8 million the prior year . Hospital bad debt expense accounted for 2 .5 percent of operating revenue, up from 2 percent in 2005, an increase of 24 percent . Since 2004, bad debt grew 38 percent .
Bad debt as a percentage of operating revenue has grown steadily since 2004 . At least two factors contributed to this increase; the rise in the uninsured, and changing hospital policies and practices on bad debt and charity care . Some providers have adopted more conservative bad debt methodologies leading to large increases in bad debt in a single year .
Others have moved expenses initially accounted for as bad debt to charity care . As discussed earlier in this report, after BJC HealthCare reported 2006 charity care and bad debt to BHF, they retroactively reclassified some of the bad debt to charity care and reported a higher 2006 amount to MHA . See pages 46 – 51 for other disclosures prior to 2006 .
Polk, Greene, Adair, Cape Girardeau, and Marion counties reported above average bad debt as a percentage of operating revenue in 2006 according to MHA . Their average annual increases in bad debt as a percentage of operating revenue from 2004 to 2006 were: Polk (58%), Greene (18%), Cape Girardeau (4%), and Marion (2%) . Northeast Regional Medical Center (Adair) did not report to MHA in 2004, yet the hospital sustained a large increase from 2005 to 2006 (87%) . Bad debt reported by BHF continues to be higher than MHA (see pages 32 – 45) due to slight methodological differences (see pages 46 – 51) .
Overall, bad debt at study hospitals continued to outpace reported charity care by more than 50 percent . As noted on page 10, it is paradoxical that the counties with the largest amounts of bad debt as a percentage of operating revenue were the same regions reporting the lowest amounts of charity care, with the exception of Greene . The gap between bad debt and charity care is expected to narrow in 2009 when all non-profit hospitals transition to the new Internal Revenue Service (IRS) guidelines for IRS Form 990, Section H that require more detailed charity care and community benefit reporting .
Uncompensated Care and Community Benefit
MHA Uncompensated Care as a Percentage of Operating Expense, Fiscal Years 2004 - 2006
0.0% 2.0% 4.0% 6.0% 8.0% 2004 2005 2006 2004 8.7% 2.6% 2.1% 2.3% 3.0% 3.1% 2.8% 2.7% 1.9% 3.3% 2005 4.7% 2.8% 1.6% 2.2% 3.1% 3.4% 2.9% 3.3% 2.9% 2.9% 4.0% 2006 2.6% 3.1% 3.2% 3.4% 3.6% 3.8% 3.9% 3.9% 4.5% 4.9%
Callaway Perry Adair Cole Audrain Cape
Girardeau Marion Boone
St. Louis
Metro Polk Greene
2006 All Missouri Hospital Average
2006 U.S. Average
Note: The following hospitals did not report to MHA Focus on Hospitals: Callaway Community (Callaway) 2006, Northeast Regional Medical Center (Adair) 2004, Ozarks Community (Greene) 2004 and 2005, and in St . Louis Metro, Kindred 2005 and 2006 and St . Joseph-Wentzville 2004 and 2005 (see Appendix C) .
The American Hospital Association (AHA) considers bad debt and charity care expense together as total uncompensated care and expresses it as a percentage of total expense . It is important to look at them together given state of transition in hospital policies and practices, and also because of the significant variation between charity care and bad debt among hospitals .
Uncompensated care expressed as a percentage of total expenses results in a slightly higher number when compared to the same measure as a percentage of operating revenue though the trends are directionally similar . To compare the results of Missouri hospitals using the AHA method, bad debt and charity care were combined and expressed as a percentage of total expenses shown in the chart above . It is interesting that the 2006 uncompensated care aggregate percentage for study hospitals of 4 percent based on MHA data (not shown) is slightly below the average of 4 .2 percent for all hospitals in Missouri16 amount, and well below the U .S . average
of 5 .7 percent17 suggesting that hospitals outside of Missouri have a bigger problem or they
measure uncompensated care differently .
Bad Debt and Charity Care – An Important Distinction
Individual hospitals and regions had higher percentages . Greene and Polk counties exceeded the aggregate percentage for study hospitals and the all Missouri hospital average for
uncompensated care as a percentage of operating expense in 2006 . Why is their uncompensated care so much higher? Exhibit 3 below shows the service area of hospitals located in Greene and Polk, indicated by a circle on the Missouri map . Many of the counties they serve are in the lowest per capita income category .
Exhibit 3: Missouri Per Capita Income 2006
ANDREW ATCHISON BATES BENTON BUCHANAN CALDWELL CARROLL CASS CLAY CLINTON DAVIESS DE KALB GENTRY GRUNDY HARRISON HENRY HOLT JACKSON JOHNSON LAFAYETTE LIVINGSTON MERCER NODAWAY PETTIS PLATTE RAY ST. CLAIR SALINE VERNON WORTH ADAIR AUDRAIN BARRY BARTON BOLLINGER BOONE BUTLER CALLAWAY CAMDEN CAPE GIRARDEAU CARTER CEDAR CHARITON CHRISTIAN CLARK COLE COOPER CRAWFORD DADE DALLAS DENT DOUGLAS DUNKLIN FRANKLIN GASCONAD E GREENE HICKORY HOWARD HOWELL IRON JASPER JEFFERSON KNOX LACLEDE LAWRENCE LEWIS LINCOLN LINN MCDONALD MACON MADISON MARIES MARION MILLER MISSISSIPPI MONITEAU MONROE MONTGOMER Y MORGAN NEW MADRID NEWTON OREGON OSAGE OZARK PEMISCOT PERRY PHELPS PIKE POLK PULASKI PUTNAM RALLS RANDOLPH REYNOLDS RIPLEY ST. CHARLES STE. GENEVIEVE ST. FRANCOIS ST. LOUIS SCHUYLER SCOTLAND SCOTT SHANNON SHELBY STODDARD STONE SULLIVAN TANEY TEXAS WARREN WASHINGTON WAYNE WEBSTER WRIGHT ST. LOUIS CITY
Per Capita Income
Greater than $27,000 $24,000 - $27,000 $21,000 - $24,000 Less than $21,000
Source: OSEDA
Concern over community benefit provided by non-profit hospitals remains on the national agenda and has prompted some health care organizations to take positions on what should be counted as community benefit . The Catholic Health Association (CHA) has taken a position and issued guidelines that exclude bad debt and other expenses (i .e ., shortfalls from Medicare,
programs designed for marketing purposes, etc .) from consideration as charity care . For details on these guidelines, go to the CHA website at www .chausa .org .
Why is bad debt excluded from consideration as charity or community benefit? Accounting rules define charity care as health care services that are never expected to result in payment . Therefore, these services should never be booked as a receivable or revenue in a financial statement . This is an important distinction since bad debt is accounted for as a receivable until collection efforts are unsuccessful . Moving bad debt to charity care is inconsistent with accepted accounting standards . And for patients, the consequences of collection efforts can be harsh . According to the research of Sydney Watson of St . Louis University School of Law and others, when medical bills go to collection agencies or attorneys, patients frequently feel pressured to put medical debt on credit cards or take out loans . They may also find themselves facing legal judgments that garnish wages, attach bank accounts, place liens on homes, or even force foreclosure .18 While it can be difficult for hospitals to ascertain if a patient qualifies for assistance
upon admission, the heavy penalties of the collection process make it prudent for hospitals to find better means of identifying patients that qualify for charity care .
Impact on Hospital Specific Financial Performance
Exhibit 4: Operating and Profit Margin Trends 2004 – 2006Missouri Hospitals Operating Margins Profit Margins
2004 2005 2006 2004 2005 2006 Adair 8.42% 8.82% 10.53% 8.42% 8.78% 10.49% Audrain -2.49% -12.18% -0.60% -2.41% -4.31% 0.14% Boone 7.84% 7.59% 8.62% 6.37% 5.30% 6.95% Callaway -1.69% 11.55% 0.58% -1.69% 12.77% 0.58% Cape Girardeau 6.41% 5.85% 8.24% 9.70% 8.08% 10.85% Cole 1.77% 1.59% -2.14% 1.93% 2.02% -1.70% Greene 5.51% 4.47% 3.62% 7.09% 4.50% 4.40% Marion -0.23% 4.95% 7.31% 1.47% 6.07% 9.17% Perry 11.24% 7.64% 3.66% 11.25% 7.71% 3.74% Polk -3.34% -4.01% -0.62% -3.10% -3.71% 0.01% St. Louis MSA* 4.06% 3.58% 4.09% 6.86% 5.24% 7.22% Aggregate 4.55% 4.03% 4.45% 6.70% 5.11% 6.62% Missouri Average19 3.09% 2.96% 3.16% 5.08%** 4.10%** 5.19%** U.S. Average20 3.60% 3.70% 4.00% 5.20% 5.30% 6.00%
* St . Louis MSA hospitals include only Missouri hospitals for this report .
** Source: DHSS . Operating margins obtained from a different source – see Endnotes, page 30 .
Note: Changes to previously reported data are based on the most current information including numerous restatements . See Appendix D for disclosures .
Financial performance in aggregate for the three-year period from 2004 to 2006 was fairly stable . Sharp increases in charity care and bad debt expense did not result in serious financial strain for the majority of study hospitals . Although average operating and profit margins dipped slightly in 2005, in 2006 they recovered to about the same level as 2004, and generally outperformed both the Missouri and national averages (Exhibit 4, page 22) .19,20 In general, urban hospitals
fared better than rural hospitals . Even though most were relatively profitable, charity care and bad debt increases from 2004 to 2006 added to expenses resulting in serious financial pressure on certain individual hospitals and regions . Their stories are told below .
Audrain County
As mentioned earlier in this report, Audrain Medical Center (AMC) was profoundly impacted by the sharp increase in charity care and bad debt expenses . Following losses in 2004, the hospital had the lowest operating and profit margins in 2005 for an independent hospital in this study . In 2006, AMC had $24 .5 million in reserves equivalent to slightly less than five months of operating revenue (see Exhibit 5, page 24) . AMC’s debt-to-equity ratio was nearly twice the Missouri average, making them more vulnerable financially and less able to withstand abrupt increases in expenses . Fortunately, AMC was able to reduce their operating loss substantially in 2006 . More information on this hospital is provided in Section II of this report .
Greene County
Financial performance for certain hospitals in Greene County was also impacted . Charity care nearly tripled at Cox Health System (CHS) from 2005 to 2006 and bad debt increased by a third . 2006 operating and profit margins were 0 .90 percent and 2 .47 percent respectively . Yet, in 2006 CHS had $476 million in reserves, equivalent to about eight months of operating revenue . CHS’s 2006 debt-to-equity ratio of 0 .6 was slightly below the Missouri average .
Similarly, St . John’s Regional Health System provided the highest amount of charity care as a percentage of operating revenue in the county and bad debt increased 21 percent from 2005 to 2006 . However, St . John’s was financially strong and, although operating results were affected, they were able to achieve a 7 .3 percent operating and profit margin, well above state and national averages . Non-operating revenue was not reported by the hospital . In 2006, St . John’s had $350 million in reserves, equivalent to about five months of operating revenue, and a debt-to-equity ratio of 0 .3, well below the Missouri average .
Also mentioned previously, Ozarks Community Hospital (OCH) experienced a large increase in uninsured patients resulting in a 52 percent and 7 .5 percent increase in bad debt and charity care respectively from 2005 to 2006 . OCH lost more than $2 million resulting in a negative (6 .5%) operating margin in 2006 . OCH’s low level of reserves fell to approximately $1 .7 million in 2006, on average equivalent to less than one month of operating revenue . OCH had high levels of debt with a debt-to-equity ratio of 8 .3, up from 3 .0 in 2005, more than 13 times the state average . Polk County
Citizens Memorial Hospital (CMH) has seen a steady rise in bad debt . Operating and profit margins were negative in 2004 and 2005, yet financial performance improved in 2006 . CMH has had high levels of debt indicated by double digit debt-to-equity ratios, more than 35 times the state average in 2006 . Reserves are among the lowest of the study hospitals at $1 .5 million, equivalent to about one week of operating revenue . CMH declined to provide information regarding the impact of the 2005 Medicaid eligibility reductions on their financial performance .
It is reasonable to conclude that the steady rise in uncompensated care has contributed to the financial strain on the hospital . While the level of public support they receive remains unclear, in January 2009 CMH reported they were proceeding on a range of projects including an ophthalmology clinic, remodeling of clinic space and the hospital radiology department, and remodeling for the new 64-slice CT .21
Cape Girardeau and Marion counties
Cape Girardeau and Marion counties had higher than average levels of bad debt as a percentage of operating revenue, yet provided little charity care . Hospitals in these counties were very profitable with operating and profit margins well above state and national averages . Levels of reserves and debt-to-equity ratios appeared to be adequate as well (see pages 32 – 45) .
Perry County
Perry County Memorial Hospital (PCMH) has reported above average levels of bad debt and below average charity care since 2004 . Medicare, Medicaid, and overall utilization declined significantly from 2004 to 2006 . Despite this, operating and profit margins were strong in 2004 and 2005 and did not dip below average until 2006 . Reserves appeared to be adequate as well, equivalent to more than eight months of operating revenue, and debt-to-equity ratios were well below aggregate and state averages . PCMH’s is designated a Medicare Critical Access Hospital (CAH) since its percentage share of Medicare patient days ranges from 76 percent – 77 percent . Medicare pays CAHs for most services to Medicare beneficiaries on the basis of 101 percent of their allowable and reasonable costs . CAHs may also receive other special payments, such as those that benefit physicians and Medicare beneficiaries . The CAH designation has likely contributed to PCMH’s financial strength and stability .
Exhibit 5: Total Reserves and Debt-to-Equity Ratios 2004 – 2006
Missouri Hospitals Reserves (Fund Balance)* Debt-to-Equity Ratios
2004 2005 2006 2004 2005 2006 Adair $19 $24 $32 4.0 3.1 2.3 Audrain 25 24 25 1.1 1.4 1.3 Boone 188 228 321 1.7 1.4 0.9 Callaway 4 5 6 1.4 0.8 0.7 Cape Girardeau 263 297 351 0.7 0.7 0.6 Cole 103 108 102 0.9 0.8 0.9 Greene 742 790 828 0.5 0.5 0.5 Marion 34 40 48 1.2 1.0 0.8 Perry 15 17 18 0.2 0.2 0.2 Polk 4 1 1 10.7 29.0 25.2 St. Louis MSA** 3,300 3,656 4,131 0.6 0.5 0.6 Aggregate $4,697 $5,191 $5,862 0.7 0.6 0.6
Missouri Average22 n/a n/a n/a 0.8 0.8 0.7
* All figures are in millions of dollars
St . Louis City and County
In 2006 BJC HealthCare’s Christian and Missouri Baptist Sullivan hospitals had significantly lower financial performance as compared to other system hospitals . This was due in part from rising charity care and bad debt expenses according to BJC . Both hospitals are located in areas that serve lower income populations . Despite the financial impact of higher charity care and bad debt, BJC was the most profitable hospital system in St . Louis . System-level operating and profit margins were substantially higher than state and national averages . In 2006, BJC had $2 .4 billion in system-level reserves, equivalent to about 13 months of operating revenue, and a debt-to-equity ratio below the state average .
SSM Health Care’s bad debt and charity care rose 76 percent and 23 percent respectively from 2005 to 2006 . It appears the increase in uncompensated care shown in this report had an important impact on SSM Health Care’s 2006 operating and profit margins . SSM’s $461 million in reserves were equivalent to about five months of operating revenue . Debt-to-equity ratios were slightly below the state average . Any added support SSM may receive from its parent company, Sisters of St . Mary, remains unclear .
Historically, Tenet Health System’s St . Louis University Hospital (SLU) has provided levels of charity care at around 3 percent operating revenue, well above the average for study hospitals . Since SLU is part of the for-profit Tenet Health System, they also pay taxes equivalent to approximately 4 percent of operating revenue . SLU has also had higher than average levels of bad debt . Operating and profit margins at SLU have improved since 2004 despite average annual increases in bad debt and charity care during the period of 13 percent and 46 percent respectively . Since SLU is part of Tenet, reserves of individual hospital facilities are consolidated at the central corporate level making comparisons among individual hospitals difficult . In 2006, SLU internal financial statements disclosed $121 million in reserves equivalent to about four months of operating revenue . Debt-to-equity ratios of 0 .2 were well below the state average . Since Tenet is publicly traded, consolidated financial statements indicate an accumulated deficit in 2006 reserves (retained earnings) of ($2 .6) billion .
Forest Park and St . Alexius hospitals were two of the most financially troubled institutions in the St . Louis area . Bad debt as a percentage of operating revenue has doubled since 2004 at both hospitals and is well above average . Surprisingly, charity care as a percentage of operating revenue was below average .
Operating and profit margins at St . Alexius have improved slightly since 2004 but remain well below average . They have few reserves and debt-to-equity ratios indicate high levels of debt . Forest Park has reduced its losses since 2004 mainly by eliminating services such as obstetrics . Yet operating and profit margins as well as reserves and debt-to-equity ratios have remained negative since 2004 .
Both facilities were owned formerly by Tenet Health System and served mainly low income populations . Tenet sold them in 2004 to Envision Hospitals of America (formerly Doctors Community Healthcare Corporation) . In December 2008, both hospitals were acquired by Success Healthcare, and the new owner stated that its immediate goal is to assess current operations and in the next six months, “to implement a turnaround plan and financial strategy that will support the immediate and long-term objectives of both hospitals .”23 The long-term
Summary
The data show Medicaid hospital utilization fell and uninsured hospital use increased steeply in 2006 for study hospitals as well as for all hospitals in Missouri . As expected, charity care and bad debt expense as a percentage of operating revenue increased in 2006, yet remained relatively low . Looking at charity and bad debt together, total uncompensated care as a
percentage of operating expense also rose at study hospitals in 2006, and rested slightly below the state average and about 30 percent below the national average . Results for a number of study hospitals were higher and indicate that charity and bad debt burdens are unevenly distributed across the state . At the same time, hospital policies and practices related to uncompensated care continue to be in a state of transition, given the controversy over non-profit hospitals’ tax-exempt status . Unfortunately, the lack of data before 2004 does not allow a comparison of normal year-to-year fluctuations in the levels charity care and bad debt over a longer period of time, and, coupled with data limitations related to hospital-specific care for the uninsured, make it difficult to determine the significance of the increases . Putting the total picture together, however, it seems reasonable to conclude that uncompensated care has increased as a result of the Medicaid reductions .
Financial performance was relatively stable from 2004 to 2006, and study hospitals generally outperformed both the Missouri and national averages . It is my expectation that charity care and bad debt expenses at study hospitals will be higher in 2007 and 2008 as the numbers of uninsured increase stemming from the combination of lower Medicaid enrollment and job loss from the weakening economy . Based on correspondence with hospital CEOs and reports from the media, the financial status of some of the study hospitals deteriorated further in 2007 . A more in-depth assessment of the impact of the uninsured on one of the more financially vulnerable hospitals identified in this report follows in Section II .
Section II
The purpose of this project is to more fully understand the extent that hospital charity care and bad debt expense, or uncompensated care, has been affected by the 2005 Medicaid reductions . As part of the analysis for this report, the scope of the research was expanded to learn more about hospitals’ efforts to cope with the cuts and whether they have been able to improve service to the uninsured population in their geographic areas .
Research on this section of the report began in mid-year 2007 . Since that time, BHF has contacted each hospital or hospital system in the study to determine how the 2005 reductions in Medicaid eligibility have affected their numbers of Medicaid and uninsured patients and to learn about any innovations that were implemented in response . Based on numerous conversations and correspondence on-going since 2007, the majority of the hospitals are using the same strategies to respond to the increase in the uninsured they have used in the past; assisting eligible patients to enroll in Medicaid, offering care at a substantial discount, and referring non-emergent
patients to an alternative health care site after an ED visit such as a hospital-based primary care or other clinic .
Two health care providers have implemented innovative strategies . The first provider is not a hospital or hospital system, yet the work of the St . Louis IHN is perhaps the best innovation to share . As mentioned earlier in the report, IHN nurses work with the underserved who seek non-emergent care in the hospital ED . IHN nurses have been able to significantly reduce non-emergent ED use by finding clinic appointments for underserved patients, sometimes the same day as the ED visit, coordinating transportation if needed . Although their efforts are not explored in this section, the St . Louis Regional Health Commission can provide in-depth information on their efforts . Another is a relatively small hospital serving a low income population in Audrain County that has provided detailed information on operational changes it has made in response to the impact of rising uninsured . These are difficult times, and Audrain Medical Center has made innovative changes to operations to improve access to primary care and on-going health care management for the region’s uninsured .
Audrain Medical Center
Audrain Medical Center (AMC) is a non-profit full-service hospital located in Mexico, Missouri, established in 1918 . AMC is located approximately 40 miles from the nearest tertiary care hospital . AMC’s service area consists of all or portions of seven counties: Audrain, Monroe, Montgomery, Callaway, Pike, Ralls, and Boone . The primary county AMC serves is Audrain; the only county among the seven that lost population in the last decade . Median family income fell over the last ten years and is now well below the state average for most of the counties in their service area . Other demographics in their service area, such as percent of births to mothers with fewer than 12 years of education and children in poverty, were higher than the state average .24
Audrain Medical Center Patient Services • AMC Cancer Center • Diabetes Education • Emergency Department • Healthworks: Outpatient
Rehabilitation Services • Inpatient Psychiatric Services • Jordan Waters Heart Center • Lab Services
• LifeLine Support: Personal response service
• MedChoice Clinics • Medical Imaging • Sleep Lab
AMC provides a number of other health care services in addition to hospital care (see above) . AMC operates nine MedChoice rural health clinics . Audrain County has five clinics in Mexico, and one in Vandalia . Ralls County has one clinic in Perry, and Montgomery County has clinics in Montgomery and Wellsville . Over the last few years, AMC has
closed its rural health clinics in Auxvasse, Centralia, and Paris, Missouri to direct financial resources to their other clinics .
Exhibit 6: Audrain Medical Center Medicaid Discharges, 2004 – 2006
390 400 410 420 430 2004 2005 2006
Audrain was profoundly affected by the collapse of the refractory brick business and the closure of the two A .P . Green and National Refractory facilities in Mexico over the last ten years . The loss of those jobs, and the generous health care benefits that went with them, increased AMC’s number of uninsured since the service industry jobs that replaced them (i .e ., Wal-Mart) pay less and often provide no health benefits .
The 2005 Medicaid eligibility reductions added to AMC’s problems . In response to BHC’s request for information regarding the effect of the cuts on the hospital, President and CEO David Neuendorf reports, “Regarding the impact of the 2005 Medicaid cuts on Audrain Medical Center, I can only think of one descriptive word, devastating . As a community safety net hospital with razor thin margins to begin with, an increase of $2 million in bad debt and charity care at cost has pushed us perilously close to default on our bond obligations and forced us to reduce services and eliminate jobs . As Medicaid coverage declined (page 28), utilization fell resulting in a record number of uninsured visits to the ED . The surge in uninsured not only placed a heavy financial burden on the hospital, but also extended waiting times for other patients seeking care in the ED and overwhelmed hospital staff .”
Adding more staff only exacerbated their financial losses . Under normal circumstances hospitals are expensive to operate and maintain . A small rural hospital has fewer beds and other services to spread the usual cost of operations much less the abrupt increase in expenses from a surge in uncompensated care . As mentioned on page 18, AMC had sustained losses for the two years prior to the effective date of the Medicaid cuts and their level of debt as compared to their reserves was nearly twice the Missouri average .
Medicaid discharges fell 5% from 2005 to 2006 at Audrain Medical Center
