11

Hospital Pricing Behavior for Hospital Pricing Behavior for the Uninsured: the Uninsured: Are Safety-Net Hospitals Are Safety-Net Hospitals Different?Different?

This study is funded in part by This study is funded in part by Robert Wood Johnson Foundation Robert Wood Johnson Foundation under the HCFO Programunder the HCFO Program

Katya Fonkych, MPhilGlenn Melnick, PhD

RAND Corporation

June 27, 2006

22

Background Background Rapid increase in hospital charges (list prices)Rapid increase in hospital charges (list prices)

Charges per day doubled from 2000 to 2004Charges per day doubled from 2000 to 2004

Growing billed chargesGrowing billed charges were ignored: were ignored: Managed care allowed for steep discounts Managed care allowed for steep discounts PPS fixed the real prices for governmentPPS fixed the real prices for government

Self-pay (SP) patients receive bills based on list Self-pay (SP) patients receive bills based on list prices (charges) and many are expected to pay prices (charges) and many are expected to pay themthem Media coverageMedia coverage

33

Research QuestionsResearch Questions

1.1. Do hospitals collect higher proportion of Do hospitals collect higher proportion of charges from self-pay patients than from charges from self-pay patients than from insured patients? insured patients?

2.2. Do safety net hospitals give more or less of a Do safety net hospitals give more or less of a discount for self pay patients compared to non-discount for self pay patients compared to non-safety net hospitals?safety net hospitals? Which safety-net Which safety-net dimensions matter for pricing:dimensions matter for pricing:

• Government subsidies for safety-net providersGovernment subsidies for safety-net providers• Hospitals that treat the largest uninsured populationHospitals that treat the largest uninsured population• Non-profit statusNon-profit status

44

Data and MethodsData and Methods Hospital data for descriptive and multivariate Hospital data for descriptive and multivariate

analysesanalyses California annual financial reports on acute-care hospitals:California annual financial reports on acute-care hospitals:

• Gross charges and net (received) revenue by payor class Gross charges and net (received) revenue by payor class Non-comparable hospitals excluded: Non-comparable hospitals excluded:

• CountyCounty, State, Psychiatric and Kaiser hospitals, hospitals with < 50 , State, Psychiatric and Kaiser hospitals, hospitals with < 50 uninsured patients uninsured patients

Key dependent variables Key dependent variables Collection percentageCollection percentage by payor class, within a hospital: by payor class, within a hospital:

Difference in collection percentageDifference in collection percentage bw self pay and insured bw self pay and insured

~ discount or relative price for SP patients, because:~ discount or relative price for SP patients, because:Gross charges are about the same for patients in same hospital Gross charges are about the same for patients in same hospital regardless of their payor (we checked top 20 DRG category )regardless of their payor (we checked top 20 DRG category )

% Paid (payor)= % Paid (payor)= Net Revenue (payor) / Gross Charges (payor)Net Revenue (payor) / Gross Charges (payor)

Δ Paid (com. insured) = Δ Paid (com. insured) = %Paid (self-pay) - %Paid (com. insured)%Paid (self-pay) - %Paid (com. insured)

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Measurement of Self-Pay versus Measurement of Self-Pay versus Low Income UninsuredLow Income Uninsured

Ideally we would like to identify low-income, uninsured, Ideally we would like to identify low-income, uninsured, self pay patients, but our SP data may include:self pay patients, but our SP data may include:

1.1. International or out of state high-income patientsInternational or out of state high-income patients• 0.6% of self-paid come out of US, vs. 0.1% among all payors0.6% of self-paid come out of US, vs. 0.1% among all payors

2.2. High income patients seeking elective procedures, not High income patients seeking elective procedures, not covered by their insurancecovered by their insurance

Self-paid patients are mostly admitted through ER, unlike Self-paid patients are mostly admitted through ER, unlike commercially insured (ER is unlikely to be elective): 70% vs 40%commercially insured (ER is unlikely to be elective): 70% vs 40%

3.3. Misclassified auto accident patients, who pay their bill from Misclassified auto accident patients, who pay their bill from auto insurance coverageauto insurance coverage

However only 12% of all accidents are self-paidHowever only 12% of all accidents are self-paid

4.4. Insured patients whose charges are misclassified as SP Insured patients whose charges are misclassified as SP initially or SP patients that are misclassified as insured initially or SP patients that are misclassified as insured

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About One in 20 Patients About One in 20 Patients Is Self-Pay (CA, 2004)Is Self-Pay (CA, 2004)

4.0%

8.1%

3.9%

5.3%

0% 2% 4% 6% 8% 10%

Discharges

Visits

Days

Adjusted Days

794 thousand

135 thousand

3.42 million

1.36 million

All acute-care Californian hospitals, excluding psychiatric

Adjusted days = inpatient days and outpatient care, weighted by their relative charges

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By 2004 SP Patients Paid Less Than By 2004 SP Patients Paid Less Than Insured But More Than GovernmentInsured But More Than Government

% Paid = Net Revenue / Gross Chargesin a given hospital (hospital-level, not patient-level)

48%

34%

0%

10%

20%

30%

40%

50%

60%

2000 2004

All self paid

Third party

MedicareMedical

88

Difference in Collection Rates BW Self Difference in Collection Rates BW Self Pay and Commercially Insured, 2004Pay and Commercially Insured, 2004

Mean ΔPaid -5.4%

1/3 of hospitals that treat 1/3 of self-pays on average collect from them more than from their commercially insured patients

0%

5%

10%

15%

20%

25%

< -30 -20 -30

-10 -20

0 -10 0+10 +10 +20

+20 +30

>+30

ΔPaid (commercial) = % Paid (self-pay) - % Paid (commercial)

% hospitals

% patients

99

Dimensions of Safety Net: Dimensions of Safety Net: Disproportionate Share HospitalsDisproportionate Share Hospitals

Hospitals that qualify for “Disproportionate Share” Hospitals that qualify for “Disproportionate Share” payment from Medicaid treat high share of low-income payment from Medicaid treat high share of low-income patients patients

Whether or not qualifyWhether or not qualify % revenue from DSH payments % revenue from DSH payments

In CA DSH hospitals must have > 25% of care provided In CA DSH hospitals must have > 25% of care provided for low-income patients, defined as indigent and Medical for low-income patients, defined as indigent and Medical

weighted towards Medicalweighted towards Medical In CA 29% of hospitals receive DSH payments (county In CA 29% of hospitals receive DSH payments (county

excluded), account for only 25% of care for self-pay excluded), account for only 25% of care for self-pay patientspatients

Profit status is another dimension of safety net: Profit status is another dimension of safety net: Non-profit hospitals are supposed to provide indigent care to Non-profit hospitals are supposed to provide indigent care to

justify their non-profit status and fulfill their missionjustify their non-profit status and fulfill their mission

1010

Dimensions of Safety Net: Dimensions of Safety Net: Hospitals with Most Self-Pay PatientsHospitals with Most Self-Pay Patients

Defined Safety-Net hospitals for Self-Pay, as those that provide most Defined Safety-Net hospitals for Self-Pay, as those that provide most access to care for uninsured (top 25% of adjusted days)access to care for uninsured (top 25% of adjusted days)

Top 25% of hospitals (82 hospitals) provide 70% of SP careTop 25% of hospitals (82 hospitals) provide 70% of SP care Only a third of top 25% hospitals (29 hospitals) are DSH => Only a third of top 25% hospitals (29 hospitals) are DSH =>

little overlaplittle overlap

Cumulative Distribution of Uninsured Patients by Hospitals

0%10%20%30%40%50%60%70%80%90%

100%

0% 25% 50% 75% 100%

% hospitals

% p

ati

en

ts

Safety Net for Self-pays

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Safety-Net Hospitals Safety-Net Hospitals Do NotDo Not Provide Provide Greater Discounts for SP PatientsGreater Discounts for SP Patients

AverageAverageAcrossAcross

HospitalsHospitalsNon-Non-DSHDSH DSHDSH

BottomBottom 75%75%

Top Top 25%25%

Top 25%Top 25%andand

DSHDSHFor-For-

ProfitProfitNon-Non-ProfitProfit

% Paid –% Paid –self paidself paid 35%35% 32%32% 34%34% 35%35% 34%34% 32%32% 35%35%

% Paid - % Paid - commercialcommercial 41%41% 36%36% 40%40% 36%36% 35%35% 29%29% 43%43%

Δ Paid -Δ Paid -commercialcommercial -5.9%-5.9% -3.9%-3.9% -5.8%-5.8% -4.0%-4.0% -1.4%-1.4% 3%3% -8%-8%

But non-profits do

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Multivariate ModelMultivariate ModelSN hospitals have different characteristics, which might be SN hospitals have different characteristics, which might be responsible for the difference in responsible for the difference in ΔPaidΔPaid : patient distribution, profit : patient distribution, profit and teaching status etc. and teaching status etc.

Dependent Variable:Dependent Variable: ΔPaid (insured) = %Paid (self-pay) - %Paid (insured)ΔPaid (insured) = %Paid (self-pay) - %Paid (insured)

Independent VariablesIndependent Variables Safety net measures (Safety net measures (DSH hospital & % revenues from DSH, DSH hospital & % revenues from DSH,

Top 25% SP, For-Profit, DSH*For-Profit) Top 25% SP, For-Profit, DSH*For-Profit) SP adjustments: % homeless, % SP accidents, % out of stateSP adjustments: % homeless, % SP accidents, % out of state Patient distribution: Outpatient SP Share, Share of commercial Patient distribution: Outpatient SP Share, Share of commercial

patientspatients Hospital characteristics: Bed Size, Rural, Teaching, Profit Margin Hospital characteristics: Bed Size, Rural, Teaching, Profit Margin

from previous yearfrom previous year

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Estimated Effects on ΔPaidEstimated Effects on ΔPaid (Relative Price to Self-Pay Patients)(Relative Price to Self-Pay Patients)

Safety-Net MeasuresSafety-Net Measures CoefficientCoefficient

DSH hospitalDSH hospital 0.0740.074

DSH & for-profitDSH & for-profit 0.0480.048

% Revenues from DSH% Revenues from DSH -0.875*-0.875*

Top 25% SP HospitalTop 25% SP Hospital 0.092**0.092**

For-profitFor-profit 0.108**0.108**

Other significant Other significant variablesvariables CoefficientCoefficient

% commercial patients% commercial patients 0.236*0.236*

% Homeless% Homeless -6.558*-6.558*

% Out of California% Out of California -0.282*-0.282*

Profit margin 2003Profit margin 2003 -0.280**-0.280**

SN Hospitals did not offer higher discounts to SP compared to non-SN SN Hospitals did not offer higher discounts to SP compared to non-SN hospitals (CA, 2004, county hospitals excluded)hospitals (CA, 2004, county hospitals excluded)

* significant at 10%* significant at 10%

** significant at 5%** significant at 5%

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Subsidy Doesn’t Help to Reduce Subsidy Doesn’t Help to Reduce “Relative Price” for SP Patients“Relative Price” for SP Patients

Difference in % Paid bw Self-paid and Commercial is higher in Difference in % Paid bw Self-paid and Commercial is higher in DSH hospitals (for av. DSH payment of 6%) than in non-DSH, DSH hospitals (for av. DSH payment of 6%) than in non-DSH, for both for-profit and non-profit hospitalsfor both for-profit and non-profit hospitals

-35%-30%-25%-20%-15%-10%

-5%0%5%

10%15%20%

0% 10% 20% 30%

% revenue from DSH payments

Δ P

aid

For-profit

Non-DSH

DSH

Non-profit

DSH

Non-DSH 8.5%

14%

6%

1515

Summary of FindingsSummary of Findings

Self-pays used to pay the highest average % of gross Self-pays used to pay the highest average % of gross charges in 2000, but in 2004:charges in 2000, but in 2004:

On average SP paid a bit less than commercially insured (-5.4%)On average SP paid a bit less than commercially insured (-5.4%) But in a third of hospitals, self-pays still pay on average more But in a third of hospitals, self-pays still pay on average more

than commercially insured patients. than commercially insured patients. SN providers do not provide bigger discounts to SP SN providers do not provide bigger discounts to SP

patients compared to other hospitals; patients compared to other hospitals; An average SN hospital have smaller discount than non-SNAn average SN hospital have smaller discount than non-SN This includes DSH and Top SP hospitalsThis includes DSH and Top SP hospitals

But non-profits do provide discounts (additional 11% of But non-profits do provide discounts (additional 11% of charges)charges)

Hospitals that provide most care for self-pays rarely get Hospitals that provide most care for self-pays rarely get government DSH subsidy government DSH subsidy

official “safety net” is hardly a safety net for self-paysofficial “safety net” is hardly a safety net for self-pays

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Policy IssuesPolicy Issues

Should we expect DSH provider to offer bigger Should we expect DSH provider to offer bigger discounts for uninsured in return for getting a discounts for uninsured in return for getting a subsidy?subsidy?

The hospitals where most SP patients receive The hospitals where most SP patients receive their care have higher relative prices than the their care have higher relative prices than the rest of the hospitalsrest of the hospitals Should those hospitals receive additional financial Should those hospitals receive additional financial

support for caring for uninsured, as DSH often doesn’t support for caring for uninsured, as DSH often doesn’t target them?target them?

Should there be regulatory or social pressure to limit Should there be regulatory or social pressure to limit prices to the uninsured?prices to the uninsured?