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As recession bites, Minnesota hospitals struggle with unpaid bills

Abbott Northwestern
Abbott Northwestern Hospital: Management meetings increasingly focused on rising expenses for uncompensated care.

Phyllis Jaeger thought her job was secure until her position at Abbott Northwestern Hospital was terminated in October 2008.

“I was stunned. How could that be?” said Jaeger, who at the time was an outpatient clinic manager with 33 years of nursing experience.

Throughout 2008, monthly hospital management meetings increasingly focused on rising hospital and clinic expenses, particularly uncompensated care costs, Jaeger said. And although she learned of pending workforce reductions in early September, she never thought her clinic would be affected — it was productive, heavily supported by donations and had met its end of year revenue projection.

Jaeger is one of hundreds of Minnesota hospital and clinic employees laid off within the past eight months, largely because of rising costs of uncompensated care.

From 2003 to 2007, uncompensated hospital care in Minnesota nearly doubled, increasing from $128.7 million to $247.4 million, according to an analysis of data from the Minnesota Department of Health (MDH) Health Care Cost Information System (HCCIS).

“Uncompensated care is growing at unprecedented rates — some hospitals have reported 30 to 50 percent increases in the past year,” said Minnesota Hospital Association President Lawrence Massa.

These increasing costs are being driven by growing numbers of people who have lost health insurance due to layoffs or employers that have dropped insurance coverage and rising numbers of people with high deductible health plans and out of pocket expenses they can’t afford, Massa said.

Yet hospitals have an obligation to provide care to everyone regardless of their ability to pay — it’s part of their mission and it’s a federal law, Massa said.

Jobs lost
Increasing uncompensated care costs have contributed to recent workforce reductions at Allina Hospitals & Clinics, North Memorial Health Care, Fairview Health Services and Hennepin County Medical Center (HCMC). And while uncompensated care serves a critical public need — providing health care to those who can’t afford it — soaring uncompensated care costs have strained the budgets of Minnesota hospitals that provide these services.

In October 2008, Allina eliminated 250 to 350 jobs, a workforce reduction of 1 to 1.5 percent, while Fairview Health Services eliminated about 200 jobs, a workforce reduction of less than 1 percent. Two months later, North Memorial Health Care eliminated about 380 jobs, a workforce reduction of nearly 7 percent. More recently, HCMC eliminated almost 100 jobs and froze capital spending on projects without binding contracts.

“The increase in overall uncompensated care is a significant factor in the financial pressures that hospitals and health systems are under,” Allina spokesman David Kanihan said.

With the state struggling with its own budget shortfalls, hospitals are expecting reductions in state reimbursement rates, which are also contributing to financial difficulties. “While our business, if you will, our busy-ness, has not gone down tremendously, our ability to get paid for our services has…and to take a workforce reduction when we still have to care for patients is tough,” Kanihan said.

People still get injured, they still get sick, and they still need care — and that knows no economic boundary, Kanihan said. “Meanwhile, the budget limitations [for the hospitals] are real and I think they’re going to be with us for a long time.”

‘It was a miracle’
Beth Sanchez understands the value of uncompensated care. Sanchez, who works in sales and can’t afford health insurance, was uninsured when pelvic pain started that persisted for months. Despite fears of cervical cancer, she postponed medical care — concerned she couldn’t afford the bill. But her worries finally disappeared when her pain was evaluated at no cost to her. She had qualified for charity care.

“Several times I felt grateful that I could get the care I needed even though I was not insured,” Sanchez said. “It was a miracle.”

Uncompensated care, which includes charity care and bad debt, is care hospitals provide without receiving payment. Charity care is care provided without the expectation of payment. Bad debt is care provided for which the hospital expected but did not receive payment.

Hospitals report charges for charity care and bad debt to MDH each year. Since charges are typically higher than the actual cost incurred by the hospital to provide the service, numbers reported in this analysis were adjusted to more accurately reflect the cost of providing care.

In 2007, Minnesota hospitals provided $101.2 million in charity care and $146.2 million in bad debt. Although charity care grew more than twice as fast as bad debt from 2003 to 2006, this trend has recently changed. From 2006 to 2007, bad debt grew more than twice as fast as charity care — bad debt increased 25.5 percent compared to charity care that increased 11.0 percent.

This recent change in bad debt may reflect increasing numbers of people who are underinsured, Kanihan said. As insurance covers less, people pay more for their health care. “And they’re not able to do it,” Kanihan said. But whether charity care or bad debt, it’s all the same — an unpaid bill.

HCMC, a safety net hospital for low income, uninsured and vulnerable populations, is the state’s largest provider of uncompensated care. In 2007, uncompensated care at HCMC totaled $48.8 million — accounting for nearly 20 percent of Minnesota hospital uncompensated care costs and more than doubling since 2003.

“That’s a substantial impediment to the viability of our institution or any other institution that would have numbers of that magnitude,” said Mike Harristhal, HCMC vice president of public policy and strategy. “We live on a razor thin margin … so when you have an increase in uncompensated care, that means we are already at the tipping point.”

Focus on HCMC
HCMC is the largest provider of uncompensated care for several reasons: its location in an urban area where people without resources tend to live, a huge outpatient system with charity care and sliding fee services that allow anyone to access care, a reputation that HCMC is able to handle any kind of illness or injury and the limited ability of other Minnesota hospitals to incur uncompensated care costs, Harristhal said.

Uncompensated care was 2.1 percent of Minnesota hospital operating expenses in 2007, an increase from 1.6 percent in 2003. But the highest was at HCMC, where uncompensated care was 9.5 percent of 2007 operating expenses, an increase from 5.6 percent in 2003. “Uncompensated care is a big challenge…and the fact that it’s increasing is particularly formidable,” Harristhal said.

Hennepin County Medical Center
Hennepin County Medical Center: May need to limit some clinic services for people who reside outside Hennepin County.

Undercompensated care is another significant issue, particularly low reimbursement from the Medical Assistance program, Minnesota’s Medicaid program for low income families with children, seniors and people with disabilities. Current inpatient Medical Assistance reimbursement rates are paid at rates from the mid-1990s, Harristhal said. This is challenging since about 45 percent of patients at HCMC are on Medical Assistance, compared to a statewide average of 11 percent, Harristhal said.

“We can’t be unthoughtful about eliminating programs [at HCMC]…by definition, the reason these programs exist and have a sizable following is because the private sector is unable or unwilling to provide these services,” Harristhal said.

Yet eliminating programs or reducing services may be necessary to preserve the institution. For example, even though HCMC historically has served the entire state, it may need to limit some clinic services for people who reside outside Hennepin County, Harristhal said.

Ultimately, patients are the ones who will suffer because of increasing uncompensated care costs and other financial pressures. Either access to care will be limited or patients will have to wait longer for services. And  patients may put off getting health care until they have a catastrophic illness, Harristhal said.

Although HCMC is not the only Minnesota hospital carrying the burden of increasing uncompensated care costs, these costs are concentrated among a small number of hospitals. In 2007, five hospitals accounted for more than one third of total uncompensated care costs. The top five were HCMC, Regions Hospital, University of Minnesota Medical Center-Fairview, Saint Marys Hospital and North Memorial Medical Center.

Allina Hospitals & Clinics, the Twin Cities’ largest medical group with 10 Minnesota hospitals, spent $33.5 million on total uncompensated care and $15.6 million on bad debt in 2007. This accounted for 13.5 percent of Minnesota hospital uncompensated care costs.

Growing pressures
Minnesota hospitals face a dismal financial situation. Net income fell from a positive 4.8 percent in third quarter 2007 to a negative 2.5 percent in third quarter 2008, according to the Minnesota Hospital Association. And yet Minnesota hospitals are critical to the overall health of this state. “The health care that [hospital systems] provide to our citizens is crucial to the quality of life in Minnesota,” Massa said. In addition, as large employers within communities, hospitals contribute to the overall economic strength of the state, Massa said.

Historically, increasing uncompensated care costs were shifted to people with private health insurance through higher premiums. But we have nearly exhausted this option. “So then the only things hospitals can do is begin to eliminate other programs in order to be able to focus on their core missions,” Massa said.

Growing financial pressures have resulted in changes at many Minnesota hospitals. In addition to workforce reductions and administrative restructuring, some hospitals have eliminated home care and chemical dependency treatment programs, Massa said. Other changes may be necessary, such as hospital consolidations and closures.

“[Although] hospitals are really trying to protect care at the bedside…I think we’re running out of places to cut that’s not going to impact patient care,” Massa said.

Kay Schwebke is a physician and a health journalism graduate student at the University of Minnesota School of Journalism and Mass Communication.

Comments (5)

  1. Submitted by Eric Ferguson on 05/22/2009 - 11:54 am.

    Thank you Kay for this detailed report. It tells us how the crumbling of the medical system, excuse me, “system”, occurs. The insanity was already known to anyone paying attention. We pay about twice what any other nation pays per capita for medicine, and we get these dreadful results. Medical workers get laid off not for a lack of need, but for a lack of patients who can pay. The people who suffer and the people who make the decisions have no contact with each other. When Republicans react to the veto of funding for GMC paying saying there’s a chance of fixing it next year, I wonder how they would react if they were told their insurance was being cut off and they would have no ability to pay, and sickness would occur as normal, but maybe next year it would get fixed? They would think it was an emergency! And it is an emergency, just not for anyone Pawlenty knows or cares about.

  2. Submitted by Bernice Vetsch on 05/22/2009 - 07:49 pm.

    Thank you, Governor No. If Pawlenty had revoked the 1999 and 2000 tax cuts on Minnesota’s highest earners, we would have received an additional $1 billion per year in revenue ($8 billion during his eternal tenure). There would have been no shortfall this year or in previous years.

    I shall repeat what I’ve suggested before, that hospitals and other providers (and the Chamber of Commerce) STOP supporting politicians like Pawlenty and instead seek passage of a national single-payer law (HR 676, known as Medicare for All) and, just as importantly, the Minnesota Health Plan devised by Senator John Marty.

    The governor’s sticky fingers would never again be able to touch funds dedicated to health care and use them to balance his budget. The Minnesota Health Plan would be managed by a 15-member team chosen by Minnesota’s 83 county boards.

    The governor supports a sick ideology, but there is no reason the rest of us have to when it is
    painfully obvious that both patients and health care workers will suffer. Isn’t it time to switch to the system that DOES work all around the world? The one that ensures care for everyone while costing half as much and that never fails to pay providers?

  3. Submitted by Karen Sandness on 05/22/2009 - 09:25 pm.

    Institutions like HCMC are being over-utilized for uncompensated care because our current insurance system works AGAINST preventive and early diagnostic care.

    It should be a no-brainer that diagnosing a problem early and nipping it in the bud is cheaper than waiting until the patient is half-dead or in terrible pain.

    But our current “system,” with its allegedly “non-profit” insurance companies, actually discourages early care through its high deductible insurance policies.

    My insurance premiums are going up 15% next month, even though I’ve never used up my deductible. It’s hard for me to afford routine care as it is, and I am seriously thinking that I could afford a lot of out-of-pocket medical expenses for the thousands of dollars that I pay the insurance company every year.

    My insurance company has gone mad with greed and hypocrisy, sending me reminders to get certain diagnostic tests that I can’t afford (the total would be twice my monthly housing costs) because I’m paying their stupid premiums.

    If I were told I could command only ONE change in our current medical system it would be to ban deductibles. Copays, all right, but deductibles, no.

  4. Submitted by Glenn Mesaros on 05/23/2009 - 08:59 am.

    Drs Wolfe and Himmelstein tear to pieces the Obama/HMO health plans, and make Baucus look Bogus. President Obama is now in the enemy camp controlled by the HMO’s.

    Which side are you on?

    BILL MOYERS: So, what are you up against? Where is the balance of power in this fight in Washington right now?

    DR. SIDNEY WOLFE: What we’re up against, essentially, is the health insurance industry. They pick who sits at the table. They pick who votes. And so forth. I mean, we have a real absence of leadership. John Conyers, to his credit, has introduced HR676, which is a single-payer bill. Bernie Sanders has introduced a single-payer bill in the Senate. But the people who are on top, who could have an enormous amount of influence are too afraid of the insurance industry, the health insurance industry. And in some serious ways, they are as in bed with them as Wall Street and the banks were in bed with the Congress and have gotten their way, with their kind of bailout.

  5. Submitted by donald maxwell on 05/23/2009 - 10:49 am.

    Money that should be going to health care providers is going instead to insurance companies.

    Bill Moyers’ program May 22 clearly showed the problem. The health insurance industry is the prime cause of excessive health care costs, and they are also sitting in the councils deciding how to fix health care. The only way to fix health care costs is to drive the insurance companies and their grossly overpaid executives out of the equation. Not only do they suck vast amounts of money out of the health system, they impose unconscionable costs and time demands at the provider level as well. The thought of a doctor having to spend hours debating with a bureaucrat at an insurance company about whether the doctor’s patient requires a given element of care is, to use a phrase, sickening.

    The US Chamber of Commerce, along with health insurance companies, is spending half a billion dollars on lobbying and advertising to oppose single-payer, a system that eliminates the insurance companies. We can understand why the insurance companies oppose it, but why the Chamber? Health insurance costs businesses plenty, so why would big business oppose single payer? Are there employees out there who put up with low pay and bad working conditions because they can’t afford to lose the company’s health insurance plan?

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