Funding of Hospital Care in Connecticut
Background
There are 31 acute care hospitals operating in Connecticut; all but one are nonprofits. Hospital revenues come from a variety of sources. Each year hospitals must file a financial report with the Office of Health Care Access (OHCA), which OHCA then compiles into an aggregate report on the financial status of all hospitals. In the FY 04 OHCA report, the net revenue payer mix was:
• 48 percent non-government (private insurance);
• 51 percent government – comprised of 41 percent Medicare; 8 percent Medicaid; 2 percent other Medical Assistance; and
• 1 percent uninsured.
Government has no direct role in hospital funding, setting rates, or in overseeing costs of hospital care for non-government payers, although through the certificate of need process, OHCA does make determinations on what new or expanded services a hospital can provide, which may impact a hospital's financial condition. Since there is no rate-setting structure for private payers, hospitals and private insurers negotiate rates or discounts from typical hospital charges. These discount agreements are statutorily required to be open for OHCA inspection, or filed with OHCA if the office requests them. OHCA reports that discounts given to private health care plans averaged 44 percent statewide in 2004.
Government has a more significant role in hospital funding for clients in publicly insured health care programs. The federal government sets Medicare rates for its clients-- persons over 65 and certain disabled populations. The state, through the Department of Social Services, sets Medicaid rates (including those for hospitals) for those Medicaid clients not in managed care. Further, the state also establishes what it will pay for medical care for its State Administered General Assistance (SAGA) population, those ineligible for Medicare or Medicaid. Those rates have typically paid for only a portion of the actual costs or charges.
In addition to treating these privately and publicly insured patients, hospitals also provide care to persons who are not covered by either private insurance or a government payer. Some hospitals have indigent care/free bed funds to help offset some of this uncompensated care. These funds rely mostly on gifts donated by individuals or organizations to a hospital to endow a free bed or create a fund to provide free patient care. Since 2003, hospitals are statutorily required to post a description of charity care funds and how patients can apply for them.
A portion of uncompensated care costs is also covered through payments made to hospitals through the Disproportionate Share Hospital Program (DSH), part of the federal/state Medicaid program. Since 1991, Connecticut has participated in this program in which hospitals share in the cost of uncompensated care rather than leaving an undue burden on only a few hospitals. The program helps those hospitals that provide a disproportionate share of uncompensated and under-compensated (Medicare and Medicaid) care to remain financially viable. The DSH payments are made by the Department of Social Services (the state's Medicaid agency), based on information submitted by the hospitals to the Office of Health Care Access. OHCA uses the information and applies the required formulae to determine what the required payments should be. DSS makes the payments through two accounts, one for all medical emergency assistance and another for urban hospitals in distressed municipalities. About $95 million was disbursed in FY 04 through these two accounts.
As nonprofits, almost all Connecticut hospitals may also seek tax-exempt debt financing from the Connecticut Health and Educational Facilities Authority (CHEFA).
Area of Focus
The study would examine the mix of revenue sources hospitals rely on to fund services, and how government payments impact the financial viability of hospitals in Connecticut.
Areas of Analysis
• Examine the Medicaid and Medicare rate setting processes for hospitals, including the basis for establishing rate levels, the frequency of increases, and the adequacy and equity of rates among hospitals.
• Assess the impact of various factors involved in the financial viability of hospitals, including size, location, area demographics, patient mix, and services offered.
• Assess whether the increasing number of Medicaid clients in managed care programs has affected hospital under-compensation and impacted DSH payments.
• Examine competitive discounting to private payers among hospitals, and the impact that has on financial viability among hospitals.
• Examine the various hospital organizational and governance structures, including whether the facility is designated as a teaching hospital, and what impact the structure has on government payments as well as on a hospital's ability to raise capital from both private and public sources.
• Track and analyze the level of uncompensated care and degree of under-compensated care, and assess whether the amounts in disproportionate share payments are sufficient given the reimbursement levels for Medicare, Medicaid and SAGA patients that hospitals receive.
• Examine the administration of the DSH payment structure (i.e., two agencies involved); the financial information submitted and formulas used to calculate the payments, and whether they are efficiently and fairly made.
• Examine the reasons that contribute to volatility in hospital revenues from year to year, and what actions state government might take to make funding more stable.
• Examine other efforts hospitals employ to maintain financial viability – e.g., investments, debt collection efforts, charity care and other endowment funds and how they are operated.
• Profile other states' participation and role in hospital funding.
Areas Not Included in Scope
The study would not examine the efficiency and cost effectiveness of individual hospitals.