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After the ACA: Hospitals that Saw Margins Boom, Charity Care Drop Report Slight Reversal in Latest Report

Though margins are still positive and charity care is far below pre-Affordable Care Act levels, statewide figures for the third quarter of 2016 show that charity care spending is ticking up at hospitals across the state
March 10, 2017

Operating margins at Oregon’s hospitals are starting to shrink and charity care spending is rising again, several years after expanded Affordable Care Act enrollments gave hospitals in the state a boost to profits, according to a new analysis of third-quarter 2016 financial results across the state.

The analysis, conducted by the Oregon Association of Hospitals and Health Systems, draws on financial and utilization data that has not been publicly released in detail. It shows broad overall statewide trends, without breaking out hospital-by-hospital results.

Statewide, hospital operating margins fell to 3.6 percent in the third quarter of 2016, down from 5.2 percent a year earlier. Inpatient discharges fell 1.6 percent over the same period, to 79,982 in Q3 2016; emergency department visits climbed 0.6 percent to 337,608.

At the same time, charity care spending climbed 39 percent, to $89.1 million in the third quarter of 2016. That’s still far below charity care peaks spendig achieved before the expansion of Medicaid through CCOs. In the third quarter of 2013, Oregon hospitals spent $212.2 million on charity care.

At a recent CEO Forum Roundtable sponsored by the Portland Association of Health Underwriters, held earlier this month, executives from a number of healthcare organizations acknowledged the uptick in charity care expense.

“There’s a belief that with Medicaid expansion, the charity care burden and providers has substantially decreased and that it will continue to decrease in the future,” said Dr. George Brown, chief executive of Legacy Health System. “However, over the last five months, every month those rates are creeping up.”

After the Affordable Care Act passed, charity care dropped from about 7.5 percent of hospital expenses to 1.25 percent on a $1.8 billion operation.

“It’s now approaching 3 percent,” Brown said. “I’m not sure why that is.”

Dave Underriner, chief executive of Providence Health & Services – Oregon, described a similar pattern at Providence, with charity care going from 8 percent down to 1.5 percent, before beginning to climb again.

“Our guess is people are underinsured,” Underriner said. “People may have insurance with high deductibles. They can’t afford it.”

Providence has responded by adjusting its charity care policy, expanding guidelines to provide assistance to people with incomes up to 300 percent of the poverty line, he said.

Although operating margins have been shrinking, net patient revenue continues to climb at Oregon’s hospitals. In the third quarter of 2016, net patient revenue was $2.76 billion, up from $2.46 billion in Q3 2015.

The hospital association data analysis also showed that who is paying for care has been generally stable since the Affordable Care Act Medicaid expansion – but after the number of people who paid their own way dropped drastically under the ACA, self-pay is starting to slowly tick back up again.

Here’s the shift in payer mix over the past year:

  • Medicaid paid 22.6 percent of hospital bills in Q3 2016, compared to 23.3 percent in Q3 2015.
  • Medicare paid 42.7 percent of hospital bills in Q3 2016, compared to 42.5 percent in Q3 2015.
  • Commercial insurance and other payers paid 32.6 percent of hospital bills in Q3 2016, compared to 32.4 percent in Q3 2016.
  • Self-paying people paid 2.1 percent of hospital bills in Q3 2016, up from 1.9 percent in Q3 2016 – but well below the 6.3 percent from Q3 2013.

“This report illustrates the unique challenges hospitals face as we traverse a new era of healthcare transformation, post-ACA,” Andy Van Pelt, executive vice president of the Oregon Association of Hospitals and Health Systems, said in a written statement that accompanied the group’s release of third-quarter data.

“At the same time, the last election brought uncertainty for the future of healthcare delivery,” Van Pelt said. “Serious questions are before us simultaneously at both the state and federal levels regarding the ability of our state’s healthcare system to continue Oregon’s healthcare transformation efforts. The financial trends we are seeing now could be significantly different from what we see in the future.”

Reach Courtney Sherwood at [email protected]

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