Prepared to Care:

Who Supports the 24/7 Role of America’s Full-service

Hospitals?

The standby role of full-service is both unique and critical in the health care system.

Standby Role:• Provide access to care 24 hours a day 7 days a

week (24/7)• Care for all patients regardless of ability to pay• Be ready to respond to disasters

24/7 Role of Full-service Hospitals

Americans rely heavily on the 24/7 access to care provided by hospital EDs…

• One third of hospital care begins in the emergency department.

• The majority of ED patients require immediate care.

• More than half of ED care occurs outside of normal business hours.

Source: The Chartis Group, Prepared to Care: The 24/7 Role of America’s Full-service Hospitals, 2006

…and that need is growing.

Source: AHA Annual Survey, data for community hospitals.

Source: The Chartis Group, Prepared to Care: The 24/7 Role of America’s Full-service Hospitals, 2006

92.8 94.899.5 103.1 106.0 110.0 111.0 112.6

0

20

40

60

80

100

120

1997 1998 1999 2000 2001 2002 2003 2004

Em

erg

ency

D

epar

tmen

t V

isit

s

Emergency Department Visits, 1997 – 2004, In Millions

Meeting common emergency needs requires a wide array of resources be maintained 24/7.Example: Resource Needs for a Common Condition

Source: The Chartis Group, Prepared to Care: The 24/7 Role of America’s Full-service Hospitals, 2006

Safety Net Role

Hospitals provide a medical safety net for the growing number of uninsured…

Number of Uninsured, 2000 – 2004, In Millions

39.8

45.0 45.843.6

41.2

2000 2001 2002 2003 2004

Source: The Chartis Group, Prepared to Care: The 24/7 Role of America’s Full-service Hospitals, 2006

…serving proportionally more Medicaid and uninsured patients than physician offices…

Percent of Total Visits by Expected Source of Payment, Emergency Departments vs. Physician Offices, 2003

Source: The Chartis Group, Prepared to Care: The 24/7 Role of America’s Full-service Hospitals, 2006

21%

14%16%

36%

5%

23%

56%

10%

Medicaid Uninsured Medicare Private Insurance

Emergency Department Physician Offices

…and taking an increasing role in the care of the behaviorally ill.

1,5071,349

467

662

1995 2004

Units of Hospitals Freestanding Facilities

Behavioral Health-Related Emergency Department Visits, 1994/95 – 2001/02

In Millions

Source: The Chartis Group, Prepared to Care: The 24/7 Role of America’s Full-service Hospitals, 2006

Inpatient Psychiatric Facilities, 1995 – 2004

4.4

2.8

1994-95 2000-01

Disaster Readiness

A wide range of disasters hit communities annually…

Source: The Chartis Group, Prepared to Care: The 24/7 Role of America’s Full-service Hospitals, 2006

...and hospitals stand ready to respond.

Percent of Hospitals with Response Plans by Type of Incident, 2003

Source: The Chartis Group, Prepared to Care: The 24/7 Role of America’s Full-service Hospitals, 2006

97.3%

84.8%

77.2% 76.9%

85.5%

NaturalDisasters

Chemical Biological Nuclear orRadiologic

Explosive

How is this Role Supported?

PrivatePayers

ElectiveCases

LessComplex

SurgicalCases

Well-funded

IndigentCare

24/7 CapacityUnfunded

Revenue from Service to Paying Patients

Medicareand

Medicaid

EmergentCases

MoreComplex

MedicalCases

Under-funded

DisasterReadiness

Hospitals support the standby role through revenues from patient care.

But hospitals face rising levels of uncompensated care…

$18.5

$20.7$21.6 $21.5

$22.3

$24.9

$26.9

$19.0

1997 1998 1999 2000 2001 2002 2003 2004

Total Uncompensated Care Costs (in $ billions),1998 - 2004

Source: AHA Annual Survey

…and a growing shortfall in payment from Medicare and Medicaid.

Hospital Payment Shortfall Relative to CostsFor Medicare and Medicaid Patients in Billions, 1997-2004

1997 1998 1999 2000 2001 2002 2003

Medicare

Medicaid

Bil

lio

ns

of

Do

lla

rs

2004

Source: The Chartis Group, Prepared to Care: The 24/7 Role of America’s Full-service Hospitals, 2006

-1.9-2.6 -2.1

-2.3

-5.0

-15

-8.1

-3.4-2.4-1.4

4.32.3

-7.1

-1.6 -1.4

-$30

-$20

-$10

$0

$10

Total Shortfallin 2004: $22 Billion

Medicare and Medicaid account for over half of the care provided by hospitals.

Percent of Gross Revenues by Payer, 2004

Source: The Lewin Group Analysis of American Hospital Association Annual Survey data, 2004 data for community hospitals

Private Pay

43.0%

Other1.7%

Medicare40.7%

Medicaid14.6%

When some payers don’t pay their fair share, others must pick up the difference.

Cost Shifting “Hydraulic"

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

130%

Cost

10 80 907060504030200 100

Below Cost PayersAbove Cost Payers

Pay

men

t to

Co

st R

atio

Percentage of Provider Costs

Cost Shift (A)= Shortfall (B) + Margin Contribution (C)

Margin

Cost Shift

Shortfall

C

A

B

Thus private payers are taking an increasing role in supporting hospital costs.

75%

100%

125%

150%

80 82 84 86 88 90 92 94 96 98 00 02 04

Aggregate Hospital Payment-to-cost Ratiosfor Private Payers, Medicare, and Medicaid1980 - 2004

Source: The Lewin Group analysis of American Hospital Association Annual Survey data, 1980 - 2004 for community hospitals

Private Payer

Medicare

Medicaid

Conclusion

• America’s communities depend heavily on the standby role of full-service hospitals and that need is growing.

• Despite its importance, this role is not explicitly funded.

• Hospitals fund the standby role through revenues from patient care.

• But levels of uncompensated care are rising and the Medicare and Medicaid shortfall is growing.

• Thus, hospitals increasingly depend on the private sector to subsidize this role.

Conclusion (continued)

• The level of “cost-shifting” is increasing.• Government under-funding is a serious issue for

businesses that provide health insurance.• “Cost-shifting” drives up the cost of private health

insurance.

• Higher costs make it harder for employers to maintain coverage.

• Hospitals need the support of the business community in securing adequate funding for government programs.