Understanding Hospital Reimbursement For Indigent Care

Hospitals provide varying levels of financial assistance, which must be budgeted for and financed by the hospital depending on factors such as their mission, financial condition, and geographic location. This assistance is known as charity care or indigent care, and it offers free or low-cost medical treatment for people who cannot pay. While hospitals are reimbursed for indigent care through various funding streams, the specific mechanisms differ across states. For example, in New Jersey, the Health Care Subsidy Fund allocated $319 million in 2022 to hospitals for financial assistance, while Massachusetts' Health Safety Net provided $387 million in 2019. Additionally, federal programs like Medicaid and the Veterans Health Administration contribute significantly to reimbursing hospitals for uncompensated care.

Medicaid reimbursements

Medicaid reimbursement rates vary across states and are often complex, with several factors influencing the amount a hospital receives. One common method is the use of capitated rates, where funding is supplied in advance based on the total number of eligible individuals in a service area. This approach can benefit hospitals with larger patient volumes as they can retain unused funds for future use. However, it may pose challenges when dealing with high-expense or unexpected cases, as funds can be depleted much faster than anticipated.

Additionally, some states have implemented programs to enhance Medicaid reimbursements for hospitals serving a disproportionate number of indigent patients. For example, Georgia's Hospital Medicaid Financing Program assesses provider fees on hospital net patient revenue and combines them with federal Medicaid funds to support hospitals serving the medically indigent. Similarly, New Jersey's Health Care Subsidy Fund allocated substantial funds in 2022 specifically for hospitals providing financial assistance to low-income individuals.

Medicaid reimbursement rates also differ based on the type of healthcare facility. Federally Qualified Health Centers (FQHCs), for instance, receive reimbursement through an all-inclusive, per-visit payment structure that covers Medicaid and Medicare patients. Meanwhile, tribal facilities may qualify for the Indian Health Service (IHS) rate, which is an all-inclusive reimbursement for Medicaid-covered services billed per encounter rather than per specific service.

Federal, state and local funding

Federal, state, and local funding play a crucial role in reimbursing hospitals for indigent care. This funding helps to offset the costs of providing care to those who cannot afford it, ensuring that hospitals can continue to offer essential medical services to all. Here is a detailed breakdown of how federal, state, and local funding contributes to reimbursing hospitals for indigent care:

Federal Funding

The federal government provides significant financial support to hospitals that offer indigent care. This support comes in the form of Medicaid and Medicare reimbursement programs, as well as direct funding through initiatives like the Veterans Health Administration. In 2017, the federal government contributed an estimated $21.7 billion in public funds to help cover the costs of uncompensated care for the uninsured. This accounts for nearly two-thirds of the public funding sources examined.

State Funding

States also play a crucial role in reimbursing hospitals for indigent care. They have discretion in allocating Medicaid Disproportionate Share Hospital (DSH) funds to hospitals within federal guidelines. DSH funding is intended to support hospitals in covering the costs of treating indigent uninsured patients and addressing any "Medicaid shortfalls." States with lower Medicaid base rates can use DSH funding to make up the difference. Additionally, states have their own programs and initiatives to provide financial assistance to hospitals. For example, the Health Care Subsidy Fund in New Jersey allocated $319 million to hospitals for financial assistance in 2022. Similarly, Massachusetts' Health Safety Net provided $387 million in payments in 2019. These state-specific funds supplement the hospitals' financial assistance obligations.

Local Funding

Local governments also contribute to reimbursing hospitals for indigent care through various programs and initiatives. In conjunction with state efforts, local funding plays a vital role in supporting hospitals that serve a disproportionate number of medically indigent individuals. For instance, the Hospital Medicaid Financing Program in Georgia assesses a provider fee on hospital net patient revenue and then matches these assessments with federal Medicaid funds to bolster the state's Medicaid program. This combined total of federal and local funds is then reimbursed to healthcare providers, ensuring they can continue serving the medically indigent population.

Veterans Health Administration

The Veterans Health Administration (VHA) is committed to providing free health care for conditions related to military service and for veterans with catastrophic disabilities and disability ratings of at least 50%. This includes free VA health care for any illness or injury determined to be connected to military service, known as a "service-connected disability". Veterans with service-connected disabilities are assigned the highest priority and are exempt from copays for any types of care, tests, or medications.

Additionally, the VHA offers free care for issues related to military sexual trauma and health exams to determine if veterans are at risk of health problems linked to their military service. Veterans may also be eligible for free VA health care based on factors such as disability rating, service history, income, pension payments, or other factors such as receiving the Medal of Honor. Recent combat veterans are eligible for 10 years of free care for any condition connected to their service without needing to provide income information.

For veterans who do not qualify for enhanced eligibility status, they may still receive VA health care if they agree to pay copays. However, they must provide income information, and their eligibility for free medications or beneficiary travel pay may not be considered. The VHA also provides burial benefits for indigent veterans, reimbursing individuals or entities that pay for the transportation of an unclaimed veteran's remains to a national cemetery for burial.

While the VHA provides comprehensive health care coverage for veterans, it is important to note that dependents of veterans enrolled in a VA health care program may not be eligible for the same program. They may need to seek alternative coverage options, such as through the Health Insurance Marketplace, Medicaid, or the Children's Health Insurance Program (CHIP).

State-specific programs

Several states have specific programs to reimburse hospitals for indigent care. For instance, New Jersey's Health Care Subsidy Fund allocated $319 million in 2022 to hospitals for financial assistance. Similarly, Massachusetts' Health Safety Net paid $387 million in 2019. New York and Pennsylvania also have programs that provide financial assistance to low-income individuals for medical care. These states' funds are provided in addition to hospitals' financial assistance obligations.

Texas has three ways for nonprofit hospitals to meet their financial assistance obligations. One of these is based on a hospital's tax-exempt status and requires the nonprofit hospital to provide financial assistance equal to its tax-exempt benefits. A 2010 study concluded that nonprofit hospitals that were spending less than 4% of net patient revenues on financial assistance increased their spending after this rule was implemented.

Georgia has a Hospital Medicaid Financing Program that assesses a provider fee on hospital net patient revenue and then uses these assessments to match federal Medicaid funds to support Georgia’s Medicaid program. This is accomplished through an increase in Medicaid benefit reimbursements to the nursing home.

At a federal level, the Veterans Health Administration was the largest government payment source, spending $10.3 billion in caring for the uninsured in 2017, all from federal funds. Medicaid payments to cover the cost of care for the uninsured were split between DSH payments ($4.4 billion) and uncompensated care pool payments ($5.4 billion).

Medicaid Disproportionate Share Hospital (DSH) payments

The history of Medicaid DSH payments can be traced back to 1981 when Medicaid hospital payments were delinked from Medicare payment levels. Prior to this, states were required to pay hospitals' reasonable costs, mirroring Medicare's hospital payment policies. However, as states gained more discretion over hospital payments, Congress grew concerned about the potential impact on hospitals serving a disproportionate number of Medicaid beneficiaries and the uninsured. As a result, legislation enacted in 1981 instructed states to consider the situation of these hospitals when establishing payment systems.

Over time, the methodology for calculating DSH payments has evolved. The Centers for Medicare & Medicaid Services (CMS) have played a pivotal role in providing guidance and implementing federal law. For instance, in 2008, CMS specified the elements for the required DSH report and audit. More recently, in 2020, CMS released a bulletin to assist states in reporting uncompensated care costs accurately. Additionally, CMS has proposed rules to implement annual reductions in state Medicaid DSH allotments for fiscal years 2018 through 2025, as mandated by the Affordable Care Act.

The funding for Medicaid DSH payments comes from a combination of state and federal sources. In fiscal year 2021, Medicaid made a total of $18.9 billion in DSH payments, with $8.1 billion in state funds and $10.8 billion in federal funds. To receive federal funding for DSH payments, states must submit an independent certified audit and an annual report detailing the DSH payments made to each qualifying hospital. This ensures compliance with federal law and appropriateness in payment amounts.

The impact of Medicaid DSH payments is significant, as evidenced by MACPAC's reports and recommendations to Congress. MACPAC's reports analyze various approaches to enhance the targeting of DSH payments, adjust DSH allotments, and address allotment reductions. These efforts aim to maintain total DSH funding levels and improve the financial stability of hospitals serving a disproportionate share of low-income patients.

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