Charity care declines at Minnesota hospitals, but bad debt inches up

Charity care costs declined last year at several Minnesota hospitals, and the drop could be linked to the expansion of health insurance coverage under the federal health law.

Between 2013 and 2014, charity care costs across 10 hospital systems declined by about $37 million, or 18 percent, according to a Star Tribune analysis.

The broader trend in uncompensated care was more complicated, however, with 13 health systems reporting an increase of $15 million, or 3 percent, in what's called "bad debt" — a measure of unpaid bills that hospitals write off.

While several medical centers say coverage expansion likely drove the decline in charity care, at least one didn't credit the health law.

There's more agreement on the cause of unpaid medical bills, as the trend continues of health insurance rules requiring Minnesotans to pay more out-of-pocket when they use care.

"The number of uninsured Minnesotans has been cut in half in since 2013," said Wendy Burt, a spokeswoman for the Minnesota Hospital Association, in a statement. "This has led to lower charity care. However, bad debt write-offs continue to be problematic for hospitals."

Reduced charity care at hospitals was one of the key goals of the federal health law, said Nancy Kane, a professor of management at the Harvard T.H. Chan School of Public Health.

Those who rely on free care suffer from economic insecurity that can have negative consequences, Kane said, including delays in seeking needed care. One fear is that growing bad debt numbers could suggest people newly covered under the health law simply face a new form of insecurity — high deductibles that leave them with medical bills that are capped, but still unaffordable.

"The bad debt piece is the wild card," said Kane, who does research in hospital finance. "A lot of the exchange products are affordable because of deductibles that are higher than people are used to."

The Star Tribune analysis draws on data from some of the state's largest health care providers, including Allina Health System, Fairview Health Services and Mayo Clinic. It also includes numbers from Hennepin County Medical Center (HCMC) in Minneapolis and Regions Hospital in St. Paul, which are two of the state's largest charity care providers.

All of those health systems, plus three others in the analysis, reported less charity care in 2014 than the previous year. Two health systems reported an increase in charity care costs.

The Minnesota Hospital Association also is collecting numbers on uncompensated care to assess the impact of the federal Affordable Care Act (ACA). Responses from 26 hospitals thus far also point to a decline in charity care last year, Burt said, as well as an increase in bad debt.

Stefan Gildemeister, the state's health economist, said factors other than the health law could have contributed to the decline in charity care. The state's economy was stronger last year, which likely means people had more job-based coverage and income for medical expenses, he said.

Charity care numbers at particular hospitals can bounce around from year to year because of a number of factors, he said. But there's clearer evidence of a common explanation like the health law when there is a "change in the same direction across a number of facilities," Gildemeister said.

"To be more certain, we'll want to look at complete 2014 data or, better yet, at 2016, when the ACA reforms will likely have settled," he said. "That is the year that we chose for simulating potential impacts on charity care."

HCMC saw a decline in charity care costs last year of $10.7 million, or about 40 percent. The savings are being passed on to Hennepin County taxpayers and offset by a health law reduction in payments designated for hospitals that traditionally care for a large number of uninsured patients, said Larry Kryzaniak, the chief financial officer at HCMC.

The health law drove the change, Kryzaniak said. Financial counselors at HCMC saw a 300 percent increase in applications for insurance coverage during the first five months of 2014, he said.

"We have not benefited significantly from the ACA — it's our patients and taxpayers that have benefited," Kryzaniak said.

"Patients, historically, have not liked to apply for charity care," he said. "They were very appreciative of it, but, at the same time, they were feeling responsible and they couldn't pay. Now, they're enrolled in a program."

Allina cited the expansion of Medicaid coverage under the Affordable Care Act when explaining its $8 million, or 27 percent, decline in charity care costs last year. Robbinsdale-based North Memorial Health Care did not provide figures, but chief financial officer Todd Ostendorf called the health law a "key driver" in lower charity care costs.

But the Rochester-based Mayo Clinic did not credit the health law for its reported decline of roughly $8.5 million, about 10 percent, in charity care costs. Instead, Mayo credited tight control of expenses across its six-state system of hospitals and clinics.

"If our costs would have increased more, our charity care would have been higher," the clinic said in a statement.

Regions Hospital in St. Paul saw a decline of about $3.2 million, or 16 percent, in charity care spending last year, but chief financial officer Heidi Conrad said the numbers were difficult to interpret. The health law was partly a factor, she said, but the hospital also saw an increase in the number of people using charity care — it's just that those patients tended to use services that were not as costly.

St. Cloud-based CentraCare Health could not provide comparable numbers for the analysis. But Kathy Parsons, a hospital official, also cited mixed signals, since charity care at the system's St. Cloud Hospital jumped during the second half of 2014.

The Star Tribune analysis tabulated bad debt costs across 13 hospital systems, with one of the biggest jumps coming at Children's Hospitals & Clinics of Minnesota. The state's largest independent pediatric medical center saw bad debt costs increase by about 75 percent to nearly $13 million in 2014.

For years, private health insurance policies have featured growing deductibles and other out-of-pocket costs as a way to limit the growth in premiums. Hospitals have cited these changes as a key driver in the growing amount of unpaid bills they must write off.

At Children's, the health law seemed to exacerbate the trend last year, said Chief Financial Officer K. Alec Mahmood.

"They think, 'I'm not going to be sick, so I can have a higher deductible,' " Mahmood said. "No one thinks they're going to have a kid that ends up being born at 28 or 29 weeks, and spend three months in the NICU, and it happens. And it's expensive."

Christopher Snowbeck • 612-673-4744

Twitter: @chrissnowbeck