Analysis of the Joint Distribution of Disproportionate Share Hospital Payments. Appendix E. Federal Support for Uncompensated Care Costs Incurred by Ambulatory Care Providers

Overview

The focus of our project is on federal support to financially vulnerable safety net hospitals. Public hospitals provided about 30 million ambulatory visits in 2000, about half of which were for primary care (NAPH, 2001). Uncompensated care costs associated with these visits as well as those for ambulatory care provided by other hospitals were taken into account in our evaluation of alternative DSH funding policies. However, one of the project's task was also to consider the role of non-hospital ambulatory care providers also play an important role in the safety net for low-income populations. The IOM report, America's Health Care Safety Net: Intact but Endangered, identifies the following classes of ambulatory care providers as core safety net providers⁽¹⁾:

• Community health centers
• Local health departments
• School-based health clinics
• Private practitioners

Support for services furnished by these providers comes from federal, state and local sources. In the first section that follows, we briefly summarize the contribution of these non-hospital ambulatory care providers to the safety net and their sources of funding. Where available, we include an estimate of current federal support for their services and/or uncompensated care costs. We follow with a discussion of our findings related to a review of initiatives to improve the access of the uninsured to ambulatory care. We conclude with a summary of issues related to funding the uncompensated care costs of community safety net providers.

What Role Do Community Safety Net Providers Play in Caring for the Uninsured?

Community Health Centers

Community health centers are private, non-profit organizations that receive public funding to furnish primary and preventive services to medically underserved populations (Dievler, 1998). Federally qualified health centers (FQHCs) must offer a sliding fee scale and provide services regardless of ability to pay (IOM, 2000). In 1998, they served approximately 9 percent of Medicaid beneficiaries, 8 percent of the uninsured, and 19 percent of the population living in medically underserved areas lacking access to primary care physicians (BPHC, 2000). Section 330 of the Public Health Service Act authorizes grant funding to four categories of health centers: community health centers, migrant health programs, organizations providing healthcare for the homeless, and centers providing primary care to residents of public housing. In 2000, 730 centers received Section 330 grants. Of the 9.6 million persons that were served in by these organizations, 33.6 % were covered by Medicaid and 40.2 % were uninsured (Table E.1).

The average user had 4.0 encounters for an average total cost of $406.14. Total costs for the 730 grantees under Section 330 were $3.9 billion. Collections on patient fees

totaled $2.15 billion, of which $1.3 billion was collected from Medicaid (62.4% of total collected fees). Based on the average total cost of $406.14 and 3,859,036 visits, total costs of providing care to the uninsured is estimated at $1.567 billion. Collections from self-pay users totaled $236.5 million, for a net cost of $1.331 billion prior to consideration of revenues from indigent care programs and grants.

Table E.2 summarizes the funding sources to support the 730 grantees. The FQHCs rely on a patch-work of federal grants to provide about 25% of their support (with the bulk coming from CHC funding). The diversity of funding streams has been seen as both administratively burdensome to the FQHCs and protection if funding is cut in one or more programs (IOM, 2000). Medicaid provided 34% of funding in 2000. Effective January 1, 2001, Medicaid reasonable cost reimbursement to FQHCs was repealed and replaced by a new prospective payment system based on historical Medicaid costs adjusted for changes in scope of services.⁽²⁾ The new payment system will reduce the stability of Medicaid support for FQHC care.

There are also 111 FQHC "look-alikes" that meet the requirements of the Section 330 grant program but do not receive grants. The "look alikes" operate in 182 sites and provide primary care services to over 1,120,000 users (BPHC, 2001a). In addition, there are community-based primary care clinics funded with state and local grants that provide care to the uninsured and low-income populations but do not meet Section 330 requirements. National estimates are not available regarding the uninsured population served by these clinics.

Local Health Departments

The core public health functions that local health departments are responsible for include linking people to needed personal health services and ensuring the provision of health care when it is otherwise unavailable. Many departments provide direct care to vulnerable populations and specialize in providing free care to populations with special needs (e.g. HIV, drug dependence) (IOM, 2000). Table E.3 summarizes the services and percentage of local health departments providing them in 1998. Funding for local health departments comes from state (40%) and local (37%) government, Medicaid (7%) and categorical federal funding (6%). There is some evidence that direct care services are declining with the growth of Medicaid managed care and less reliance on local health departments as Medicaid providers (IOM, 2000).

School-Based Health Centers

School-based health center (SBHC) programs have grew rapidly during the last decade from about 150 centers in 1990 to an estimated 1300 in 2000 (Morone, 2001). While the centers differ in scope of services, staffing, and funding, they generally consist of a multi-disciplinary team providing a comprehensive range of services that specifically meet the health care needs of young people in the community (CHHCS, 2001).

Initial growth in SBHCs was supported by funding from the Robert Wood Johnson Foundation's "Making the Grade: State and Local Partnerships to Establish School-Based Health Centers " and has been spurred more recently by increased funding from government sources. For the 1997-1998 school year, total funding from state, federal and third party collections totaled $53.5 million (Table E.4). The two main sources of federal funds were state-directed Maternal and Child Health grants and direct grants under the Health Schools/Healthy Communities program. Support from local communities is substantial but has not been estimated at the national level.⁽³⁾ In addition, foundations continue to provide support (CHHCS, 2001a).

A qualified health care provider is responsible for the clinical services furnished by SBHCs. The sponsors of the staff are:

• Hospitals -- 29%
• Health depts. -- 22%
• CHCs -- 18%
• Non-profit health organizations -- 11%
• School systems -- 9%
• Medical and nursing schools -- 6%
• All other  -- 4%

(National Assembly, 1999)

National estimates of the care furnished to the uninsured by the school-based clinics have not been made. The estimates are hindered by the policy of many SBHCs to furnish services free of charge to all students seeking care. However, the Centers for Medicare and Medicaid Services policies on "free care" and third-party liability have made it problematic to obtain Medicaid payment without charging other third-party payers (Morone, 2001; National Assembly, 2001; Schneider, 2001). Many states are now encouraging SBHCs to pursue third-party collections (including Medicaid) and to use federal and state grants for the uninsured. There is, however, considerable burden associated with obtaining valid insurance information and establishing billing and collection procedures (National Assembly, 2001).

SBHCs may participate in Medicaid in all but three states: Arizona, Hawaii, and Oklahoma. (CHHCS, 2001). Within the context of the current project, state policies regarding how the school-based health centers are viewed by Medicaid are most pertinent.

• In some states, the school-based health centers are defined as non-institutional Medicaid providers. For example, the Illinois Department of Public Aid has established standards and an application process for school-based health centers seeking enrollment as a medical provider.
• A different model is used in New York. The school-based health center is treated as a sub-provider of the sponsoring institution, which can then bill for the school-based health center's services at the Medicaid all-inclusive rate (National Assembly, 2001).

Either model provides a potential mechanism for obtaining information on the center's volume of uncompensated care and for providing funding for that care. Other models, which require managed care plans to contract with SBHCs do not have the same potential.

Private Practitioners

Eighty percent of ambulatory care delivered by non-Federal physicians is provided in office-based practices (Cherry et al., 2001). The expected source of payment for the office visits in 1999 were:

• Private insurance: 55%
• Medicare: 20%
• Medicaid: 7.5%
• Self-pay: 5.4%
• No-charge: 1.0%
• Other: 10.3%

Although community health centers and hospital outpatient departments are traditionally seen as the major medical providers for vulnerable populations, physician offices provide substantial ambulatory care to low-income populations. Data from the 1996 Medical Expenditure Panel Survey indicates that 86.4 % of ambulatory visits made by the uninsured (71.4 million visits) were to office-based practices compared to 7.6% in outpatient departments and 6.0% in emergency rooms (Kirby, 2001). There is some evidence, however, that physicians in private practice tend to treat patients who are temporarily uninsured and who have income levels above 300 percent of poverty (IOM, 2000). In 1994, 78 percent of the primary care visits by patients with Medicaid or no insurance coverage were to physician offices compared to 10.6 % to community health centers and 11.5% to hospital outpatient departments. The pattern was similar in 1998 (Forrest, 2000).

Data from the 1998-1999 Community Tracking Study (CTS)(Reed, 2001) shows about 72 percent of physicians provide an average of 10.6 hours per month of charity care. Physicians who own their practice are more likely provide charity care than those who do not (81% vs. 61%). Among those least likely to provide charity care are physicians practicing in staff/group HMOs (46%) and hospital-owned settings (61%). While there is concern that the growth of managed care is reducing physician willingness to provide charity care, data from the American Medical Association's 1994 Socio-economic Monitoring Survey indicate that 67.7 percent of all physicians provided charity care, defined as care provided for free or at reduced fees due to financial need on the part of the patient. Of the physicians providing charity care, physicians spent, on average, 7.2 hours or 12.4 percent of their working hours providing charity care.

What Data Sources Are Available to Estimate Uncompensated Ambulatory Care?

National Ambulatory Medical Care Survey

The National Ambulatory Medical Care Survey (NAMCS) is a national probability sample survey related to visits to office-based physicians in the United States. The sample data are weighted to produce national estimates. The most recent survey data available are for 1999. The NAMCS collects information on the characteristics of the physician practice, the patient, and the visit. Of particular interest for purposes of this report is the series of questions related to expected source of payment and the policies of the physician practice related to treating poor patients. Some findings on office-based physician practices were discussed earlier in this. Other findings for 1999 include the following (Cherry et al., 2001):

• There were 756.7 million visits to office-based physician practices. In 95.7 percent, a physician saw the patient. The mean time spent with the physician was 19.3 minutes.
• One-third of physicians do not accept charity cases and 21.6 percent do not accept new Medicaid patients.
• Since 1985, self-pay declined from about 35 to 5% of visits.

There is no single category for uncompensated care on the survey. The self-pay category includes any patient without insurance who is expected to be ultimately responsible for the most of the bill, regardless of whether payment is actually made. Thus, it includes both those who are able to pay for the services and those who are not. The no-charge category includes visits for which no fee is charged, including not only charity care but also research and professional courtesy care.

As indicated earlier, self-pay was estimated as the source of payment for 5.4% of visits. Applying this percentage to the total number of visits to physician practices (756.7 million) yields an estimate of 40.9 million visits by the uninsured in 1999, considerably less that the estimate provided by the MEPS survey (see below). Using both the self-pay and no-charge categories raises the estimated visits to 48.4 million.

Medical Expenditure Panel Survey

The Medical Expenditure Panel Survey (MEPS) is a national survey funded by the Agency for Healthcare Research and Quality (AHRQ) to obtain a variety of measures on health care services, including sources of payment for health care expenditures (AHRQ, 2000). The survey consists of four components, two of which are particularly relevant to estimating the volume of care provided by private practitioners to the uninsured⁽⁴⁾

The household component collects information from a nationally representative sample of approximately 10,000 families and 24,000 individuals.

The medical care component covers approximately 17,000 physicians as well as hospitals and home health care providers. Its purpose is to supplement the information obtained from the household component.

The expenditure data on the file is developed from both the household and medical components. Pre-imputed and imputed versions of expenditure and sources of payment data are provided. Expenditures are defined as the sum of payments for care received, including out-of-pocket payments and payments by insurers and other parties. Charges associated with bad debt and charity care are not counted as health care expenditures because there are no payments associated with them. (Charges are collected in addition to expenditures, but it is not clear how they meaningful they are. Charges with no expenditures cannot be assumed to be charity care because of flat fees and bundled payments). Office-based visits are separately categorized and the payer categories include: self or family, Medicaid, and other state and local sources. The latter category includes community and neighborhood clinics, health departments, and local programs for low-income patients. Thus, MEPS does not contain direct information on charity care but does have indirect information on the expected sources of payment that can be used to make a national estimate the volume of office-based services provided to the uninsured.

As previously reported, the 1996 MEPS estimated the uninsured had 71.4 million visits to office-based practices. The estimate was based on 32.78 uninsured. For all patients, the average expense per ambulatory visit (to all categories) was $127 and the median expense was $50. The average payment by the uninsured for ambulatory care is not available from published data but could be determined from the survey data.

Community Tracking Study (CTS)

The Center for Studying Health System Change uses a set of national biennial surveys and site visits to track changes in health care systems over time and the effects of those changes on patients and providers. The Community Tracking System (CTS) collects data in 60 randomly selected communities stratified by region, community size and type (metropolitan/non-metropolitan) to provide a representative profile of change across the United States. Twelve metropolitan areas with more than 200,000 people are studied in depth, including site visits as well as larger sampling. CTS survey and site visit data for Round I spans 1996-1997, Round II from 1998-1999 and Round III from 2000-2001. The results are available from Round I and II.

The household telephone survey collects information on 60,000 individuals in 33,000 families. The questions involving insurance coverage and health care utilization could be used to estimate the volume of physician services furnished to the uninsured. In particular, the survey asks for information on insurance coverage (and changes within the past year) and use of ambulatory services within the past 12 months, including the number of physician visits. There are also questions related to income and total family out-of-pocket expenses over the past 12 months.

The physician telephone survey collects information from a nationally representative survey of 12,000 non-federal physicians who spend at least 20 hours per week in patient care. The questions are directed to the nature of the practice and its revenues. The only question that is directly related to charity care has limited utility in estimating uncompensated care costs associated with physician services. The question asks the physician to estimate the number of hours spent in the last month providing charity care. The survey defines charity care as meaning that either no fee or a reduced fee was charged because of the patient's financial need. Time spent in providing care that resulted in bad debt (payment expected but not received) or contractual allowances from Medicare and Medicaid are not to be included in the time estimate. There is no distinction between services for which no or token payment was received versus those where the fee was discounted to a level comparable to that received from third party payers such as Medicare.

The uninsured in the CTS Household Survey reported an average of two physician visits per year. Assuming 42.1 million uninsured (Kaiser, 2000) would produce an estimated 84.2 million visits to physician offices in 1999.

Public Programs Providing The Uninsured Access to Community Providers

An earlier Urban Institute study examined programs using DSH funds to provide health care services to the uninsured in five locations: Denver, CO; Indianapolis, IN; Lansing, MI; Detroit, MI; and, San Antonio, TX. These programs are viewed as innovative efforts to increase the access of the uninsured to primary care services. While the design of the programs varied substantially, the primary objective of each program was to provide a health care structure to the uninsured population by offering a service package to uninsured individuals with an established network of providers (Urban, 2001). Eligible individuals enrolled in the program. Some programs assigned participants to a primary care provider while others developed a list of specified providers that participants could use.

• Denver Health provides care through a hospital, FQHCs, school-based clinics, and the local health department. Community physicians in office-based practices are not part of the provider network. (The Colorado Indigent Care Program contracts with licensed community clinics that provide a minimum of three percent charity care).
• Wishard Memorial Hospital has historically been the safety net provider in Indianapolis. Under Wishard Advantage, the Indiana University Medical Group (IUMG), a physician group sponsored by the medical school and the Health and Hospital Corporation, provides primary and specialty care for uninsured patients and managed Wishard Health Services' community health centers. The IUMG primary care physicians provide primary care and act as gatekeepers in exchange got a capitated per member per month (PMPM) payment; payment for specialty care is made separately though the medical school. While most care is furnished at the community centers, some is also provided in the IUMG offices. Recently, Wishard Advantage was opened to other community physicians (Rollins, 2001a).
• The Ingram Health Plan provides low-income uninsured patients with access to ambulatory care. With the exception of one private office, the primary care sites are operated by the health department, University of Michigan, and Ingram Regional Medical Center. Primary care and specialty providers receive PMPM payments.
• The Carelink Program that provides financial assistance to uninsured residents of Bexar County (San Antonio), Texas is sponsored by the University Health System (UHS). The University of Texas physicians staff the hospital and its five clinics. Prior to Carelink, UHS made a pre-determined lump sum payment to the medical school that was unrelated to the patients or volume of care provided by an individual physician. Under Carelink, the physicians are paid on a fee-for-service basis.
• Both programs designed to improve access for low-income uninsured persons in Detroit use managed care approaches and contract with provider networks on a capitated basis.⁽⁵⁾

DSH payments to hospitals are unrelated to the care provided specific uninsured individuals; in contrast, the ambulatory programs discussed above limit payment to services provided to individuals who are enrolled in a program targeted to the uninsured. The model evolving in Los Angeles using 1115 waiver funds is somewhat different in that uninsured patients are not enrolled into a program but complete certificates of indigency attesting to their financial status at the treatment site. The LACDHS allocates the total pool of waiver funds to local service areas based on projected need. Individual providers are paid on a fee-for-services basis (with case management fees available for certain patients with special needs). Under the program, the Los Angeles County Department of Health Services (LACDHS) has extended its provider network from county-owned clinics to include community partners: 17 FQHCs, 25 state-licensed community clinics, and 25 private physician practices (Rollins, 2001b).

Issues Related to Supporting Uncompensated Care Costs of Community Providers

Currently, ambulatory care services provided to the uninsured in community-based settings are supported through charity care and a patchwork of federal, state, and local government programs. The way care is provided at the local level varies substantially across communities. In some, care is concentrated in hospital outpatient departments and to some extent is supported through DSH funding. Other communities have a strong tradition of community health centers that receive federal funding through section 330 grants. Community physicians in office-based practices provide substantial services to the uninsured but for the most part received no public funding for these services. The differences in support have implications for where care is provided and the relative proportion of uncompensated care costs that are borne by the federal government, state and local communities, and the health care provider.

While rationalizing federal subsidies for ambulatory care provided to low-income uninsured populations is an attractive policy objective, the mechanism for doing so in the absence of national health insurance is not clear. Support for uncompensated care provided by hospitals and by community health centers is not tied to care provided specific individuals. However, our limited review of innovative programs funded by 1115 waivers or Community Access Program grants indicate that most programs providing financial assistance for community-based ambulatory care involve enrollment by both the patient and the provider. Enrollment by the patient in a program that qualifies for federal funding would be tantamount to national health insurance. Without patient enrollment, a system of provider enrollment and reporting would be required. A mechanism is already in place for community health centers to subsidize for the difference between operating expenses and revenues. Since these facilities are required by law to treat all patients regardless of ability to pay and to establish a sliding fee schedule, there has not been an issue regarding whether the uncompensated care is attributable to indigent low-income patients. Extending a subsidy to other community-based ambulatory care providers would raise a number of issues:

• Which providers should qualify for subsidies? Should only providers who have a demonstrated commitment to serving low-income populations qualify? How would they be identified? Should there be an enrollment mechanism?
• What services should be subsidized? Is it realistic to limit subsidies to services provided to low-income uninsured populations in the absence of enrolling eligible patients? What reporting and verification system is reasonable? Should the subsidies be limited to services that must be required by law by the Emergency Medical Treatment and Labor Act?
• What level of uncompensated care costs should be subsidized? To what extent should the costs of care to the uninsured be covered by patient fees, absorbed by the provider, supported by state and local government, and subsidized by the federal government? Is there rationale for providing varying levels of support for the different components of the safety net for ambulatory care?

Questions such as these would need to be addressed before an estimate could be made of the projected cost of extending DSH federal subsidies to community ambulatory care providers.

Even with these issues resolved, it will not be easy to estimate the cost of the program based on existing data for the four major types of community-based safety net providers. Our findings in this regard from available published data are detailed below.

• Community health centers. Comprehensive data are available for BPHC grantees. The 730 grantees incurred net costs of $1.331 billion for uninsured users. Comparable financial data are not available for FQHC look-alikes. If we assume they had comparable costs and utilization, their net costs for uninsured users is about $0.62 billion. Data are not available for other community clinics that serve a safety net function.
• Local health departments. We were unable to identify a data source that would allow us to estimate the cost of direct care services provided to the uninsured. There is no uniform reporting of local health department costs or services that could be used for such an estimate.
• School-based health clinics. The no-charge policy of many school-based health clinics hinders an estimate of the uncompensated care costs for uninsured children.
• Private practitioners. National survey data can be used to estimate the volume of physician visits made by the uninsured. Estimates based on earlier data would need to be adjusted for growth in the uninsured and inflation. Assuming 41.2 million uninsured and 2-2.5 ambulatory visits to physician offices per uninsured (based on the CTS and MEPS findings), results in an estimated 82- 103 million visits by the uninsured. The average Medicare physician fee schedule payment for an extended office visit, new patient in 2002 is $130.68. Using this payment as an estimate of the cost of ambulatory visits, results in total estimated costs of $10.7 -13.5 billion before collections are taken into account. While not within the scope of this project, MEPS data could also be used to develop an estimate of the uncompensated care costs associated with these visits since the survey collects information on health care expenses by source of payment.

Additional research is needed to understand how much of the ambulatory care provided to the uninsured population is uncompensated, and how the uncompensated care burden varies across communities and types of providers within the communities. A policy that concentrates funding solely on hospital outpatient departments and clinics may serve to discourage community providers from providing substantial amounts of care to the indigent populations. Survey data could be used to define the characteristics of private physician practices that have a demonstrated commitment to serving the poor that could be used to establish potential criteria for identifying eligible providers for funding support. Case studies of the localities studied in depth by the CTS could also be used to understand differences across communities in the relative share of uncompensated ambulatory care costs borne by physicians relative to hospital-owned systems of care. Findings on this issue have implications for the equity of a policy that concentrates federal subsidies for uncompensated care on hospitals. Case studies of programs that have extended to safety net to include community providers could provide information on whether it is feasible to operationalize a non-enrollment program for the uninsured.

We did not identify a body of literature that examined issues related to financing uncompensated care costs incurred by ambulatory providers. One reason may be the diversity of the arrangements for providing care to the uninsured. An alternative to establishing national policies related to funding charity care provided by non-hospital community providers would be to expand the Community Access Program. This program provides the flexibility to take the structure of the local health care delivery system into account that may be lost in a national allocation policy for uncompensated care costs incurred by community safety-net providers. In the absence of national health insurance, grants to local communities targeted toward expanding and strengthening the role of community safety-net providers that are not current recipients of federal funds would be more appropriate use of DSH-like funds than a program that tries to allocate funding directly to those providers based on national policies and criteria. The challenge will be to devise coordinated policies between DSH funding to hospitals and grant programs for community providers that create appropriate incentives for the expansion of community-based ambulatory care access for the uninsured.

Endnotes

1.  The IOM report also notes the important role played by the Veterans Health Administration and Indian Health Service.

2.  Section 702 of the Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act effective January 1, 2001.

3.  For example, local funds covered 46% of the budgets for school-based health centers in 11 communities.

4.  The other two components are a nursing home component and an insurance component that collects information on coverage and premiums from the household component and business establishments.

5.  Health Choice targets low-income workers while Plus Care targets the non-elderly adult population.

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