Uncompensated Care Linked to Hospital Profit Status Changes
A new study in the November/December issue of Health Affairs reveals that uncompensated care levels decline when not-for-profit and public hospitals convert to for-profit facilities. Titled "Hospital Conversions, Margins, and the Provision of Uncompensated Care," this study is the first to analyze hospital conversions on a national, as opposed to regional or statewide, basis. Through telephone surveys and data from the AHA Annual Survey of Hospitals 1990-1997, the study's authors tracked 431 hospital conversions between 1991 and 1998. The researchers analyzed changes in uncompensated care, total admissions, revenue and operating margins that came about with the conversions. According to the study's authors, uncompensated care is "an indicator of care to low-income and uninsured patients" and includes both "bad debt" -- care provided in instances when "payment is expected but not yet received," which may include some patients with health insurance -- and "charity care," which is care given "without the expectation of payment." The study revealed that, on average, not-for-profit hospitals spent a larger portion of total expenses on uncompensated care than for-profit hospitals, while public hospitals spent more than twice as much as a portion of total expenses as not-for-profit and for-profit hospitals on uncompensated care. When not-for-profit hospitals converted to for-profit entities, uncompensated care decreased from 5.3% of total expenses to 4.7%, equaling about a $400,000 average reduction in hospital spending. The drop in spending on uncompensated care was even more sharp in public hospitals that converted to for-profit hospitals, dropping from 5.2% to 2.5% of total expenses, or about $800,000 less per hospital per year. Overall, the switch from not-for-profit to for-profit status was accompanied by an approximately 13% reduction in uncompensated care, and "[e]ven larger reductions in uncompensated care accompanied the transition from public to for-profit status," the study found.
The study's authors said that several "concerns" were raised by the transition of not-for-profit and public hospitals to for-profit status. Public hospitals often have "clearly articulated expectations ... as safety-net providers." But since for-profit hospitals have "a fiduciary obligation to maximize shareholders' wealth," they thus have "strong incentives ... to maximize profits," even though this "obligation may run counter to the provision of community benefits, such as care for the uninsured." Specific "concern" was raised over the impact of the "large reduction" in uncompensated care among public hospitals converting to for-profit entities. As "the bulk" of these conversions occurred among smaller, rural public hospitals, the study's authors noted that the transitions "could limit access to hospital care among the uninsured." The increasing number of for-profit hospitals, coupled with the "continued rise" in the percentage of Americans without insurance, could "reduce the willingness or the capacity of hospitals to finance care for those who are unable to pay," the study concluded (Thorpe et al., "Hospital Conversions, Margins, and the Provision of Uncompensated Care," Health Affairs, Nov./Dec. 2000).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.