San Diego Business Journal

Following a statewide survey of California hospitals, executives of several large local facilities have revealed how much they spend on discounts to the poor and how they make up for the expense , or, in some cases, never see the money again.

Some San Diego County hospitals are increasing charity care to the uninsured, although it is unclear from the survey if the same is true of hospitals statewide.

The survey was conducted by the Sacramento-based California Hospital Association to gauge hospital charity care a year after the association issued guidelines to ward off state mandates.

Four local health systems say they were stepping up charity care even before the recommendations, and individually report increases of between 16 percent at UC San Diego Medical Center and more than 70 percent at Sharp HealthCare, which has four hospitals, since 2003.

Scripps Health, one of the area's largest systems with five hospitals, increased 58 percent for the same period.

Sharp and Scripps each spent about $20 million on charity care in 2005.

The cost that hospitals , 56 percent of which operate at a loss in California , spend on discounts to the poor or uninsured, translates to higher medical costs or insurance premiums for those who do pay, including businesses, health care administrators readily admit.

Nine of 17 of the area's hospitals in San Diego County reported net losses for 2004, according to the Office of Statewide Health Planning and Development.

The CHA survey, short on hospital-specific dollars, said 129 of the 159 responding hospitals, or 81 percent, have implemented new or revised charity care policies since 2004. However, more than half of the 347 hospitals sent the online survey did not respond. The survey did not indicate how much hospitals are spending or how many more low income and under-insured patients they are serving than before the guidelines.

Policing Themselves

The state hospital association recommends hospitals offer a minimum discount on medical bills for patients with annual incomes up to 300 percent of the federal poverty level. A family of four cannot make more than $56,550, and a single person could not make more than $27,930 under that guideline. Most area hospitals follow or exceed the threshold.

A handful of bills since 2002 have threatened to impose standards surrounding charity care , most recently Senate Bill 1394, proposed in December by Sen. Deborah Ortiz, D-Sacramento. According to the CHA, the bill would mandate some of the guidelines the agency set forth, as well as require nonprofit hospitals to spend a minimum amount on charity care. In Arizona and other states, such measures are already in place.

"Hospitals began to think, 'Well, we might as well do it rather than have it mandated,' " said Steven Escoboza, the chief financial officer and president of the Hospital Association of San Diego and Imperial Counties.

Charity care is nothing new, administrators say, but the CHA's guidelines called for hospitals to solidify policies and make stronger attempts to notify patients of the possible discount, such as posting signs in multiple languages in waiting rooms and billing departments.

"We've pushed (the discount) out to the front end and let them know they can get the patient care they deserve," said Cindy Burns, manager of patient business services at Palomar Pomerado Health, a public health system serving inland North County with two hospitals and two skilled nursing facilities.

PPH spent $13.9 million on charity care in 2005 , up slightly from 2004.

Growing Numbers

Most hospital systems in the county have seen an increase during the last year in both the number of people applying for and being accepted for charity care discounts.

San Diego County has one of the highest uninsured rates in the country , about 600,000 people, according to the San Diego County Medical Society. About 27 percent of the county's population under age 65 is uninsured, according to the San Diego-based Council of Community Clinics.

While the number of patients who received care with a charity care discount at UCSD Medical Center increased 9 percent since 2003, officials there said the hospitals' cost to treat them rose more than 16 percent to $19.4 million.

Charity care accounts for a significant portion of uncompensated care for most hospitals here, officials say, though under-reimbursement from Medi-Cal accounts for the largest such loss. Local medical executives and doctors often complain that the percentage Medi-Cal reimburses to California hospitals and doctors here is among the lowest in the country. The amount Sharp, for example, loses annually to Medi-Cal is typically almost twice what it spends on charity care. In 2005, Sharp said its Medi-Cal shortfall was nearly $65 million.

Marion Mulkey, a health insurance expert at the Sacramento-based California HealthCare Foundation, a nonprofit think tank, said perhaps there is no industry more secretive about pricing than that of health care, and that in some cases, consumers end up paying more than health plans for services.

"It's a very kind of murky world about just what hospitals cost and to know where all the money is flowing because nobody has to disclose an awful lot about this," Mulkey said.

Those Who Pay, Pay More

Still, Sharp Chief Executive Officer Mike Murphy is not hesitant to point out that hospitals make up for uncompensated care by raising prices on those who do pay.

"It's a question that we, as a country, have to address, and we haven't," Murphy said. "We don't like to deal with that question."

Hospitals raise prices, and in turn, so do health insurance companies, experts say.

"If everyone would just pay their share, that would be one thing," Murphy said. "When costs go up for the employer, they pass that on to you."

Some hospitals, such as Children's Hospital, which implemented a 19 percent increase in charity care spending since 2003, use some community grants raised by foundations.

Don Stanziano, a spokesman for Scripps Health, said the network of five hospitals has seen the number of patients applying and qualifying for financial assistance increase in recent years. The amount the hospital has spent on charity care has increased more than 58 percent since 2003, but bad debt, or unpaid bills, has declined.

"Like other health care providers across the country, we recover the loss from charity care and (government programs, such as Medi-Cal) by shifting those costs to insured patients," Stanziano said. "The issue of uninsured and under-insured should concern the business community, as it is one of the main reasons insurance premiums continue to rise for employers and co-pays and deductibles are increasing for employees."

San Diego businessman Dr. Jim Knight started Consumer Directed Health Care, Inc., a company that trains businesses on increasingly popular health savings accounts, or HSAs.

Knight, a urologist by training, said about 25 percent of businesses nationwide offer HSAs to employees, though he said a strong presence of health maintenance organizations, or HMOs, in San Diego means such accounts are not gaining as fast here. Still, Knight, who started his firm in 1996, believes the plans will replace all managed care, or HMOs, within the next five to 10 years.

A consumer-directed health plan works similar to a 401(k) for health care: Consumers pay a higher deductible while saving money in a tax-free account. The theory is that consumers will spend on health care more wisely, partly because they keep unused money. HSA advocates say they can lower premiums and costs for everyone in the insurance pool.

"Anything you don't use just collects interest," said Knight. "What the government is saying is that if you'll share the cost of health care, we'll give you a tax break , and it's a big tax break."

Escoboza, of the Hospital Association of San Diego and Imperial Counties, said he doesn't see health savings accounts taking precedence anytime soon.

"It's mostly a benefit for people who have money: Use it, not lose it," Escoboza said. "Low income people would be less likely to be able to get into that arrangement."

The Tipping Point

He said, however, that businesses are edging closer to a "tipping point," where they'll force employees to pay a much larger share of the cost of health care.

"These things are troubling hospitals very much," he said. "It's a matter of how they cover their costs. (Charity care) is part of their mission and has been since they've been established."

Dr. Thomas Barela, the medical director for the Segal Co., a New York-based human resources consulting firm, said without large state and federal subsidies, hospitals would go bankrupt.

"If the hospital cannot get the person qualified for a federal program, the hospital eats it," Barela said.