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Government Accountability Office Finds Imbalance in Uncompensated Care Payments

Funding hospitals receive for uncompensated care is not in line with the actual costs they have, according to a report from the Government Accountability Office: “Federal Action Needed to Better Align Payments with Costs.”  Since 2000, hospitals have issued more than $502 billion in uncompensated care to patients, according to an American

Hospital Association report from January 2016. Uncompensated care is the total of bad debt and charity care a hospital provides.

The GAO was asked to review federal support for hospital uncompensated care, including “key sources and amounts of federal support for hospital uncompensated care costs; the basis for determining hospital uncompensated care payments made under Medicaid and Medicare; and the extent to which Medicare (uncompensated care) payments align with hospital uncompensated care costs,” according to a summary of the report.

Hospitals receive about $50 million each year in uncompensated care payments from Medicare and Medicaid, according to the report.  The GAO finds that Medicare uncompensated care payments are not in line with the hospitals’ costs for two reasons:

  • Payments are mostly based on hospitals’ Medicaid workload instead of the actual uncompensated care costs they have; and
  • The Centers for Medicare and Medicaid Services does not consider Medicaid payments hospitals receive to offset uncompensated care costs when issuing payments through Medicare. In 2014, for example, most of the Medicare payments—about 85 percent or $7.7 billion—were based on hospitals work for Medicaid patients; meaning they may also receive payments from Medicaid based on that care.

“CMS officials acknowledge this could result in payments not aligned with uncompensated care costs, particularly in states that have expanded Medicaid resulting in fewer uninsured individuals and lower uncompensated care costs,” according to the GAO report.  CMS proposed a rule in April that includes consideration of “using hospitals actual uncompensated care costs as the basis for making Medicare UC payments.”

The GAO notes in its report that CMS officials said the Medicare and Medicaid programs are run separately.

“Medicare UC payments that are not aligned with uncompensated care costs or adjusted to reflect Medicaid payments undermine CMS’s efforts to efficiently pay for healthcare services,” according to the report.

The GAO issued recommendations for CMS to improve the connection between Medicare UC payments and hospitals’ costs and take Medicaid payments into consideration when also issuing UC payments under Medicare.

The Department of Health and Human Services has proposed to transition to a new data source to identify hospitals’ uncompensated care costs, according to the GAO report, which includes comments from HHS.  “Specifically, HHS proposes to define uncompensated care costs as the costs of charity care and non-Medicare bad debt,” according to the report.

HHS also concurs with the GAO’s recommendations and is considering comments on its own proposed rule including the data source transition for determining uncompensated care before finalizing its rule.  “We agree that aligning uncompensated care payments to actual uncompensated care costs is important and helps make sure that HHS is directing these payments to hospitals appropriately,” HHS notes in its comments. 

“In the event HHS finalizes its proposal to begin using uncompensated care cost data from the Medicare cost report to determine the distribution of these Medicare payments, we intend to continue to review the definition of uncompensated care as appropriate.”  More information:

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