News Release

Hospital study shows more patients could qualify for free care coverage

Peer-Reviewed Publication

Massachusetts General Hospital

Most bad-debt writeoffs involve patients poor enough to qualify for state reimbursement

BOSTON - Practically all patients whose care in Massachusetts hospitals are reimbursed out of state free-care funds have incomes within the guidelines for such care, according to a report in the July/August issue of Health Affairs. However, contrary to a common belief that many patients whose expenses are written off as bad debt are able to pay their bills, the study of 1996 data found that the great majority of bad-debt patients had incomes that would have made them eligible for state-sponsored free care or Medicaid.

The report was written by Joel Weissman, PhD, of the Massachusetts General Hospital (MGH) and Harvard Medical School; Paul Dryfoos, MBA, a Boston-based health care consultant and former Massachusetts deputy state budget director; and Katharine London of the Massachusetts Division of Health Care Finance and Policy (DHCFP).

"We found that a lot of care written off to bad debt is delivered to patients who are actually quite poor, which has potentially serious implications, since these patients may be reluctant to obtain treatment in the future if they fear being billed for services they cannot afford," says Weissman, a member of the MGH Institute for Health Policy and the report's lead author. "This information, along with some public policy changes, has prompted many hospitals in the state to set up programs to identify all uninsured patients who might be eligible for free care or for Medicaid programs."

Massachusetts hospitals receive at least partial reimbursement for the care of uninsured patients from the state's uncompensated care pool. This reimbursement falls into three categories: full free care, for those with incomes below 200 percent of the federal poverty level; partial free care, for those with incomes between 200 and 400 percent of the poverty level; and emergency bad debt, for emergency care rendered to uninsured patients who neither applied for free care nor paid their bills despite hospitals' concerted collection efforts. Unpaid bills for nonemergency services (nonemergent bad debt) are not covered by free care, and those costs are absorbed by the hospitals.

Because Massachusetts hospitals have incentives to identify and enroll patients eligible for free care, there was a common belief that those whose unpaid bills came under the category of nonemergent bad debt were able to pay for their care but simply defaulted on their bills, suggesting that hospitals should improve their collection practices. Some also questioned whether all of those receiving free care were truly entitled to be included in the program. In 1996 the Massachusetts legislature asked the state DHCFP to study the income levels of patients who had received free care to verify whether pool funds were being used appropriately.

The division requested Massachusetts hospitals to submit a record of free care and bad-debt writeoffs from the 1996 fiscal year, information that was sent to the state Department of Revenue for matching with state income tax records. Income data were matched using patients' Social Security numbers and reported back to DHCFP in a way that maintained the anonymity of individual patients. Data were provided by seven hospitals - two disproportionate-share hospitals (DSH -- those designated by the federal government to care for a large number of poor and uninsured patients) from the Boston area and five non-DSH institutions from both urban and suburban areas throughout the state. The researchers note that, while the number of hospitals participating in the survey was relatively small, the results were remarkably consistent across the seven participating institutions.

Analysis of the data found that 84 percent of free-care patients and 78 percent of those categorized as emergency bad debt (covered by the uncompensated care pool) had incomes below the federal poverty level, which was $15,600 for a family of four in 1996. In addition, more than 75 percent of those whose care was written off as nonemergent bad debt actually had incomes less than 200 percent of the poverty level, which would have qualified them for full free care. Only 1 percent of free care patients, 4 percent of emergency bad debt and 6 percent of nonemergent bad debt patients had incomes over 400 percent of the poverty level, making them totally ineligible for free care.

"No one really expected the number of bad-debt patients who were truly poor to be so high," says London. "The study shows how important it is for hospitals to work in partnership with the state to enroll all eligible patients in programs that cover the costs of their care."

Dryfoos notes: "These findings - plus a growing body of evidence from national studies indicating that many eligible people do not participate in Medicaid - has led to a public/private partnership in Massachusetts to enroll uninsured patients in appropriate programs. Participation by all eligible patients is a win/win situation, improving hospital's reimbursement for the services they provide and helping to ensure that patients get the care they need."

The researchers suggest that future studies be conducted in other parts of the country - for example, areas where for-profit hospitals are more common - to verify whether the results of this survey are broadly applicable. They also note that, because so much bad-debt care appears to be attributable to poor patients, states that impose requirements on hospitals to deliver community benefit services might want to include some bad-debt care in their calculation of such services.

Partial support for the study was provided by Partners HealthCare System, the Massachusetts Hospital Association and the Commonwealth Fund. Health Affairs is a bimonthly multidisciplinary journal devoted to health policy research and opinion, published by Project HOPE.

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