COVID-19 curbed health systems’ charity-care spending in 2020

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Many factors contributed to declines in charity care spending year-over-year, but the simplest and most common explanation given by executives for systems on the list and others was that fewer patients visited emergency departments and scheduled surgeries, so fewer qualified for free or discounted care.

“The pool becomes smaller so the patients who are eligible for charity care also become fewer,” said Ge Bai, associate professor of accounting and health policy and management at Johns Hopkins University, who has studied charity care. “The hospitals are exposed to fewer eligible patients.”

But even as some systems delivered less charity care in 2020, others went the opposite direction. Year-over-year charity-care spending jumped more than 30% at Spectrum Health in Grand Rapids, Mich., and Phoenix-based Banner Health. Both systems said they expanded their eligibility criteria last year.

Charity care spending has been an important area of focus for state and federal regulators in recent years as they assess whether not-for-profit health systems truly deserve their tax-exempt status.

Some health system leaders described looking at charity care in isolation as short-sighted. After all, free and discounted care is just one component in a broader array of community benefits hospitals operate, which include health screenings and education programs. Executives encouraged a focus on their broader community benefit spending totals, which tend to include the unreimbursed cost of treating Medicaid and Medicare patients.

St. Louis-based Ascension, which provided 18% less charity care in 2020, didn’t comment on the charity-care decline, but noted that its total community benefit spending increased 12.3% year-over-year.

Intermountain’s total community benefit spending, for example, spiked 77% in 2020, even as charity care declined 10% to $158 million. Mikelle Moore, Intermountain’s chief community health officer, said the Salt Lake City-based system responded to a huge need during the pandemic to hire more community health workers to direct people to safety net clinics and financial assistance. It also set up COVID hotlines.

“It’s smarter spend, if you will, for trying to shift care to where it will improve health as opposed to just resolve a crisis for someone,” she said.

 

Policies got more generous

The pandemic prompted some systems to make their financial assistance policies more accessible.

Toledo, Ohio-based ProMedica relaxed its process of verifying people’s eligibility for free or discounted care, said Chief Financial Officer Steve Cavanaugh. The policy provides free care for people below 200% of the federal poverty guidelines—$25,520 for a single-person household in 2020—and discounted care up to 400%. But last year, there was more of a “presumption of eligibility,” Cavanaugh said.

“We just administered the process more loosely and said, ‘Let’s just give people the benefit of the doubt under the challenging circumstances we’re operating in,'” he said.

Even so, ProMedica’s charity-care spending declined 7.3% in 2020, which Cavanaugh said was simply a product of fewer patients coming in.

“We saw a lot less patients,” he said. “That’s the simple, basic truth of it.”

Cleveland Clinic expanded charity care in 2020 to include all of patients’ out-of-pocket costs related to COVID testing or treatment, regardless of their income. The health system’s charity-care spending grew 2.4% year-over-year. CFO Steven Glass said about 200,000 Cleveland Clinic patients received some amount of charity care in 2020, compared with about 74,000 in 2019.

“The big increase was largely driven by these COVID-related patients and our policy of expanding that to COVID patients,” he said. “We did that under the principle of this is a very challenging time.”

CommonSpirit Health is still making its financial assistance policy consistent across its markets following the early 2019 merger that formed the Chicago-based system, which has more than 130 hospitals. It landed on a policy that was more generous in 2020: Free care up to 200% of the federal poverty level and discounted up to 400%, said Dan Morissette, CommonSpirit’s chief financial officer. That combined with a greater focus on educating patients about the policy drove charity care spending up almost 17% in 2020.

Spectrum expanded its charity care policy in 2020 to include patients who filed for bankruptcy and deceased patients who don’t have estates, said Celeste McIntyre, the system’s corporate controller. McIntyre said part of the reason Spectrum’s free and discounted care is lower than other systems is because Michigan expanded Medicaid, lowering demand for charity care.

Banner not only expanded its income criteria, 2020 is the first full year in which the system opened up charity care to patients who have health insurance. Dennis Laraway, Banner’s CFO, said the change was necessary now that even insured patients are on the hook for large proportions of their bills.

Patients who have health insurance but still get stuck with high deductibles, copays or coinsurance comprise an increasingly large share of hospitals’ charity care provisions. That’s pushing more and more systems to open their policies to those patients if they haven’t already.

“The biggest crisis may well be shifting toward people with inadequate insurance,” said Jill Horwitz, a professor and vice dean for faculty and intellectual life at UCLA School of Law.

At Intermountain, insured patients comprised 60% of the system’s charity care spending in 2020, up from 47% in 2013, before the Affordable Care Act’s health insurance exchanges entered the picture. Intermountain’s leaders believe that being insured shouldn’t be a deterrent for getting care out of fear people couldn’t get charity care, Moore said.

“There was a time when people were really uncomfortable that we were providing financial assistance to people with insurance,” she said.

 

Big differences in spending

There’s a wide gap in how much health systems spend on charity care.

At one end, charity care at Spectrum comprised 0.1% of expenses in 2020. At UPMC, which declined to comment, that was 0.5%. At the other end, AdventHealth’s charity care was 3.4% of expenses last year. Baylor Scott & White Health was 3.3%.

Those ratios are influenced both by hospitals’ financial assistance policies—whether they cover a wide or narrow range of patients—and how proactive they are in making patients aware of those policies.

Bai, of Johns Hopkins, said systems have to balance not spending too much on charity care and cutting into their bottom line and not spending too little and risk a public backlash.

“It’s not accidental,” she said. “It’s strategic.”

There are also external factors at play. In 2020, the big one was lower volumes because of elective procedure suspensions during the COVID-19 pandemic, as well as patients holding off on getting care out of fear of catching the coronavirus.

Another factor unique to 2020 was the federal government reimbursed providers for COVID treatment and testing for uninsured patients at Medicare rates. For AdventHealth, that amounted to about $20 million, said Tim Reiner, AdventHealth’s senior vice president of revenue cycle. Many of those patients otherwise would have qualified for charity care, he said. At SSM Health in St. Louis, that was just over $5 million, said Karen Rewerts, vice president of financial operations.

Whether or not states expanded Medicaid has a huge impact on hospitals’ charity care spending. Patients covered under the healthcare program for low-income individuals typically aren’t billed at all, which means they wouldn’t qualify for charity care.

That’s part of the reason Intermountain spent less on charity care in 2020. Utah’s Medicaid expansion took effect Jan. 1, 2020. As a result, the system treated a higher percentage of Medicaid patients last year and a corresponding decline in uninsured patients, Moore said.

Florida, by contrast, has not expanded Medicaid and has the second highest number of residents who would qualify behind Texas, per a recent Kaiser Family Foundation analysis.

That’s partly why AdventHealth in Altamonte Springs, Fla., spent a higher proportion of its expenses on charity care than any system in Modern Healthcare’s analysis: 3.4% in 2020.

Reiner noted that the system also has a generous financial assistance policy that became even more so in 2020. AdventHealth decided during the pandemic that any patients who’d received charity care within the past year would automatically be eligible for another 12 months. Reiner said that was to ensure no one held off on COVID treatment or other important care.

From a regulatory perspective, Bai said it wouldn’t make sense to set a specific charity care spending floor that applied to everyone. That’s partly because hospitals have varying financial strengths and community needs. Moreover, setting such a “bright-line minimum requirement” would cause overperforming hospitals to lower their charity care spending, Bai said.

UCLA’s Horwitz said pressuring not-for-profit hospitals to provide charity care could backfire in that they might compensate by ramping up their more profitable services, even in cases where it’s not necessary.

“That kind of cost shifting ends up being more expensive for our system and leads to overconsumption of care, overconsumption that can be dangerous,” she said.

That’s simply because not-for-profit health systems, like any other private business, have to balance their budgets, Horwitz said. “And they’re operating on such tight margins.”

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