The hospital accounting concept of "adjusted revenue" subtracts Medicare and Medical Assistance (including Medicaid) charges from total patient care revenue to allow meaningful comparisons of hospital levels of charity care. Medicare and Medicaid have specifically excluded participation in covering charity care from their prospectively-determined payment levels. Since the payments that hospitals receive from Medicare and Medical Assistance do not cover charity care, the hospitals adjust their rates to recoup the charity care from their base of private purchasers and payers. This private paying base differs widely among hospitals as a percentage of their business. Therefore, the use of "adjusted revenue" allows for a comparison of hospital charity care as a percentage of this meaningful base of privately-sponsored patients.

A majority of the state’s charity care comes from relatively few hospitals. Sixteen urban hospitals each reported $2 million or more, and together provided $78 million in charity care (approximately 72% of the charity care provided statewide) in FY 1998 (see Table 2). The amount of charity care individual hospitals provided ranged from $0 to $23.2 million, which reflect differences in their size, types of services provided, provisions for charity care in their mission statements, and the characteristics of surrounding communities.

The three hospitals providing the most charity care as a percentage of gross patient revenue were:

• Harborview Medical Center - Seattle, at 5.99%
• Children’s Hospital - Seattle, at 2.98%
• Othello Community Hospital - Othello, at 2.26%

The three hospitals providing the most charity care as a percentage of adjusted revenue were:

• Harborview Medical Center - Seattle , at 13.92%
• Okanogan-Douglas Hospital - Brewster, at 6.34%
• Othello Community Hospital - Othello, at 4.91%

Three hospitals reported zero charity care in FY 1998.

Tables 3 and 4 group hospitals into five regions. The 1998 proportions of charity care show wide variations among different areas of the state. Four of the five regions are groups of 13 to 21 contiguous counties. The fifth region, King County, is the state’s largest population center and has a concentration of hospitals.

Among these regions, King County clearly provides the largest dollar amount of charity care. However, this picture changes dramatically when Harborview Medical Center’s $23.2 million in charity care (21.4% of the statewide total) is excluded. Then charity care in King County drops from 2.88% of adjusted revenue to 1.90%. It is also important to note that Harborview derives 57.0% of its revenue from Medicare and Medical Assistance, far more than the aggregate percent of other King County hospitals (40.3%) or the statewide percent (46.8%). This comparison shows a very limited base for the cost-shifting of charity care at Harborview.

Using definitions from DOH Office of Rural Health (Appendix 2), there were 44 hospitals which could be classified as rural in 1998. Of these, 8 were in sparsely populated "Frontier" areas, 19 in "Remote Rural" areas, and 17 in "Less Remote Rural " areas. Most rural hospitals are small; two-thirds have less than 45 set-up beds. Included in the Less Remote Rural category are five larger Medicare-designated rural referral hospitals which range in size from 107 to 222 set-up beds.

Rural hospitals reported total charity care of $10.3 million in 1996, $9.9 million in 1997, and $8.5 million in 1998. Overall, rural hospitals have tended to provide less charity care than their urban counterparts and have also tended to be more dependent on Medicare and Medical Assistance discounted payments, as shown in Table 5. For rural hospitals, charity care averaged 1.69 percent of adjusted revenue, while charity care for urban hospitals averaged 2.46 percent of adjusted revenue.

For 1998, rural hospitals derived 56.7% of their total revenue from Medicare and Medical Assistance discounted payments. This indicated a more limited base for shifting charity care charges to other payers in rural hospitals than in urban hospitals, which have 45.2% Medicare/Medical Assistance payments.

In 1998, charity care (Appendix 2) was less than one percent of total revenue for 37 of the 44 rural hospitals; of these 37, it was 0.5% or less for 22 hospitals. In terms of adjusted revenue, charity care was less than 2% for 33 of the 44 hospitals; of these 33, it was 1% or less for 20 hospitals. Only one rural hospital reported zero charity care.

Among the three categories of rural hospitals, Less Remote Rural hospitals provided the most charity care as a percentage of adjusted revenue during 1998, and Remote Rural hospitals the least.

In accordance with state statute, hospitals submit a projected annual budget prior to the start of their fiscal year. Included in their budget are projections for their anticipated total charges for charity care for the next fiscal year (FY 1999). Overall, hospitals projected that charity care would decrease 4.97 percent, or $6.0 million below the projected FY 1998 or 6.19 percent above the actual FY 1998 (see Table 6 below). Hospital projections for charity care have been higher than actual experience over the past several years

Most hospitals’ FY 1999 projections were based on an analysis performed during their budget process. These analyses usually took into account the following factors:

• A hospital’s historical fiscal years and its most recent year-to-date total number of patients and patient charges;
• Planned price changes;
• Projected volume changes
• Known usage factors (including the area’s economy and demographics);
• Hospital budget constraints; and
• A hospital’s mission or statement to support the community.

Many hospitals state as part of their mission that they will serve the poor and underserved. Hospitals usually restrict their uncompensated health care programs to individuals unable to access entitlement programs such as Medical Assistance, unable to pay for medical obligations, or to those with limited financial resources.

These individuals generally include the recently unemployed; those employed but without employer-provided health insurance; those whose health insurance requires significant deductibles or co-payments; single parents; those recently or currently experiencing a divorce; transients or those without a permanent address; students, as well as spouses and their dependents; retired persons not yet eligible for Medicare; and the elderly who have limited or no Medicare supplemental insurance coverage.

As a result of RCW 70.170.060(5) every hospital has a charity care policy on file with the Department of Health which states the hospital’s procedure to determine and verify the income information supplied by persons applying for uncompensated health care services. The hospital’s charity care policy must be consistently and equitably applied so that no patient is denied uncompensated health care based upon race, creed, color, sex, national origin, sexual orientation, disability, age, or source of income. Table 7 summarizes the steps that hospitals generally use to determine eligibility or verify applicant information.

Table 7: Summary of steps generally used by Washington hospitals to determine and verify applications for charity care

1) Hospital identifies any uninsured, underinsured, or self-pay patients.
2) Patient completes application/determination of eligibility form.
3) Patient completes financial statement that includes income, assets, and liabilities. Patient supplies documentation of resources (e.g., w-2, pay stubs, tax forms), and outstanding obligations (e.g., bank statements, loan documents).
4) Hospital considers federal poverty guidelines and familysize.
5) Hospital verifies third-party coverage, if indicated.
6) Designated hospital staff person interviews patient to assess the patient ability to pay in full; ability to pay reasonable monthly installments; and qualification for charity care.
7) Hospital attempts to secure federal, state, or local funding, if appropriate.
8) After the hospital makes an initial determination of insufficient funds, income, and health care benefits, the claim becomes eligible for final review, often by a committee composed of administrative, business office, social services and nursing staff. Occasionally, hospital board members serve on these committees.

In general, hospitals provide information on charity care, as well as applications for assistance, at the time of registration, in their emergency rooms, and in fiscal services offices. These applications may also be included in a patient’s admission packet or with itemized bills that are mailed to a patient after discharge from the hospital. Additionally, hospitals provide applications for assistance upon a patient’s request. Many hospitals publish brochures or pamphlets describing the availability of charity care and identifying the criteria for qualification. Some hospitals offer individual counseling at the time of pre-admission or during the collection process and determine an individual’s lack of financial resources. Signs may be posted both in English and other languages commonly used in the hospital’s service area, explaining available charity care services. These signs are usually located in the admitting and emergency entrance areas of the hospital. Hospitals also publish annual notices in local or area newspapers describing charity care programs

From the beginning, hospitals have included service to the poor and underserved as part of their mission. Ever since hospital rate setting was suspended in law, in 1989, charity care expenditures grew steadily until 1993. From 1993 until 1997, that growth stabilized and declined. Charity care increased in 1998 for the first time in five years. Today, welfare reform, along with changes to Medicare and Medicaid entitlements and the continuing expansion of managed care organizations, are leading issues which may affect the future of charity care. Although welfare reform may ultimately increase the number of ineligible clients, and thus increase the need for charity care, representatives from the Department of Social and Health Services have indicated that the number of Medicaid clients has not decreased and is not expected to vary in the next biennium.

Medicaid coverage for children has increased and the Basic Health Plan has enrolled more clients with a current enrollment of 217,000 residents. There have also been changes in insurance policies aimed at providing guaranteed insurance portability and limitations on exclusions for pre-existing conditions. These combined factors most certainly contributed to the 1994 to 1997 declines in the amount of charity care being provided. However, to what degree and how this is true is not fully understood at this time. The Department has had to rely on complaints from the pubic regarding charity care denials to ensure compliance with the charity care laws. Beginning in 2000, the Hospital Licensing Division of DOH has agreed to include specific steps during the annual on-site licensing survey to support the charity care mandates. These include the following:

1. Monitor each hospital for their compliance with RCW 70.170.060(3) regarding the required admissions policies, practices and transfer activities.
2. Verify a hospital’s charity care policy required by both RCW 170.170.060(5) and WAC 246-453-070 is current and has been reported to the HPDS office.
3. Assure each hospital prominently displays a notice concerning the waiver/reduction of fees for persons meeting the WAC 246-453-020(2) criteria during the survey process.
4. Check to see that each hospital provides a written explanation of any waiver or reduction of fees provided when a person meets the criteria established in WAC 246-453-020(2).
5. Verify that each hospital requiring an application process for determining eligibility for charity care complies with WAC 246-453-020(5).
6. Substantiate that each hospital complies with WAC 246-453-060 regarding the provision of true emergency care.
7. During record review, examine medical charts of patients identified as charity care recipients to verify they have been dealt with appropriately.

This cooperation will greatly enhance the Department’s oversight and enforcement of the charity care requirements.

As hospitals operate more and more like for-profit businesses, the debate about whether they warrant their tax-exempt status continues at both the state and federal level. Do hospitals provide sufficient benefits, including charity care, to their community and state to offset the loss of potential tax revenue? Private entities are also examining how charity care is being provided in their communities. For example, a Community Benefits Inventory Project, working with a group of representatives from hospitals and other organizations in Seattle and Spokane, has defined "community benefits" as charity care and community services. The participants working on this project have identified three objectives:

(1) Provide reliable information to inspire and support collaborative community benefits activities among hospitals and delivery systems;
(2) Provide credible information to support the tax-exempt status of non-profit hospitals and systems; and
(3) Support public education activities aimed at reinforcing the image of hospitals and systems as community-oriented organizations

This information should be beneficial in the review of charity care. It will provide a much broader and possibly a truer picture of benefits provided by Washington hospitals. A final report is scheduled for publication in 2000.

The Legislature has provided the following mandate for the Department in RCW 70.170.010(3):

Until such time as all residents of Washington have health insurance, the need for charity care will continue. Although the amount may vary from year to year, the Department will continue to collect and report the level of charity care provided in Washington hospitals.