This time of year, Mercy Medical Center's chief executive, Thomas R. Mullen, takes a look back at his budget, and for 2010 he sees $40 million in unpaid bills.
He knows much of that will be passed on to the rest of Mercy's patients, through raised rates that their private insurers and Medicaid and Medicare will have to pay.
It's a "hidden tax" that the public pays in some way in every state — one that federal health care reform aims to curb. And while most agree that the burden will decline for the nation's paying customers in coming years as more Americans become insured, administrators wonder just how much savings there will be for caregivers and patients.
"We're seeing more uncompensated care now," Mullen said. "In theory it will get better, but I'm being practical about it. There are new factors to consider since Congress passed the legislation. Though to me, it'll come down to the [strength of the] economy."
Mercy and other hospitals are still recording profits, and even expanding, but the upward trend in uncompensated care started decades ago. The Maryland Hospital Association reports that the tab rose to 8 percent of gross hospital revenues in 2007 from 4 percent in 1977. And hospitals everywhere are feeling the impact of the economic downturn more acutely now, officials say.
Observers say more companies have switched to cheaper, higher-deductible health plans that can overburden workers who seek care. Deductibles will be capped but not eliminated by the health reform law.
And even as the number of uninsured drops with reform, millions of Americans will still be without coverage.
In Maryland, health officials have begun adding people to the Medicaid rolls ahead of national deadlines — a move that some hospital officials say has helped keep losses from uncompensated care from being even greater.
Teressa Davis Sawyer is one of those people. The Lansdowne paralegal and mother of three is not offered insurance at her job, and neither is her husband, who works in construction. She got temporary coverage through Baltimore County. But when that ran out, she could not afford $740 per month for a private policy that covered some care for her pre-existing conditions, melanoma and hemochromatosis, an inherited disorder that can cause life-threatening organ damage because the body absorbs too much iron. She said she left a trail of unpaid bills at hospitals in Baltimore before discovering last year that she qualified for the Medicaid expansion.
The public ultimately picks up the tab — and critics have balked at the cost to expand Medicaid under the reform law and the threat to state budgets when federal subsidies decline. But Sawyer said she believes she's now costing the medical system less because she is managing her illnesses better. And her good health means she can keep working and paying her other bills and her share of taxes.
"My treatments were running $900 a month with medications and surgeries, and I'd have to ask for charity from hospitals," she said. "A lot of time I'd go without. It left me fatigued, and that impacted my kids, who had to give up a lot of activities, and my husband, who had to work two jobs."
Vincent DeMarco, president of the advocacy group Maryland Citizens' Health Initiative, said covering millions more people through Medicaid and future health insurance exchanges will help curb the growth in medical costs because more people will be paying in. Emphasizing preventative care will mean fewer costly trips to hospitals.
The Maryland Hospital Association supports the additional Medicaid coverage, which is paid for by state and federal sources. But Jim Reiter, a spokesman for the group, said that for now, the government's budget constraints have meant cuts in its payments — and that might be adding to the uncompensated care numbers.
The association reports that in 2009, hospitals provided $260 million in charity care that will not be reimbursed on top of $600 million in care for people who did not pay their bills. That got passed on in the form of higher hospital rates for everyone else.
"Clearly, the problem now is the recession," Reiter said. "People lose their jobs and lose their coverage, and companies scale back on their insurance, putting the burden on employees. All hospitals are seeing that in one form or another."
In most states, hospitals raise rates to compensate for unpaid bills or they receive more from taxpayers.
In Maryland, a unique rate-setting system means that all hospitals charge the same somewhat-inflated fees to paying customers to make up for uncompensated care. The idea is to lessen the burden by spreading it around, including to the federal programs for the poor and the elderly. The Maryland Health Care Cost Review Commission estimates what the unpaid bills will be each year and sets the rates, though in recent years, Reiter said, the rates have been too low.
He and others are looking to an improving economy and health care reform to lower the debt and slow growth in hospital rates.
But how much is up for debate. John F. Holahan, director of the Urban Institute's Health Policy Research Center, estimated in a report for the nonpartisan research organization that the amount of uncompensated care will fall from $62.1 billion in 2009 to $46.6 billion in 2019. Without reform, he estimates that the cost of uncompensated care would rise to between $107 billion and $141 billion in 2019.
When the reform law is fully implemented in 2014, more of the uninsured will get subsidies to buy coverage and the insurance industry will be prevented from limiting essential care, charging extremely high deductibles or dropping patients when they get sick, said Jennifer Tolbert, associate director of the Kaiser Family Foundation's Commission on Medicaid and the Uninsured.
That means there will be a cap on the amount of uncompensated care those people could generate. Also, the law requires insurers to pay the entire cost of some preventive services to encourage people to get care before a health problem escalates. And it encourages less costly care in doctors offices instead of hospitals.
"I don't think we'll eliminate all uncompensated care, but we should reduce it significantly," she said. "How quickly uncompensated care gets reduced depends on how quickly people get enrolled in coverage."
Others agree that getting the uninsured covered is a key to driving down costs in the long term.
Maryland has added tens of thousands to the Medicaid rolls in the past few years, opened up its high-risk pool to more people with pre-existing conditions and offered grants to businesses to offer insurance. Officials expect about half of the state's 700,000 uninsured to get some kind of coverage.
That will "add up and create a better scenario than there is today in terms of uncompensated care," said Alice Burton at the Health Care Reform Coordinating Council, which is working on implementing the reform law in Maryland. The state presented its plan Monday to Gov. Martin O'Malley.
Maryland's hospital rate-setting system could be a model for other states looking for ways to equitably spread the burden of whatever uncompensated care remains, said John M. Colmers, outgoing secretary of the Maryland Department of Health and Mental Hygiene and chairman of the council. Its system is expected to persist in some form after the reform law is implemented.
Ultimately, Colmers and other Maryland officials believe the federal reform law is necessary to bring costs down for everyone.
"My thought is that uncompensated care as a percentage of revenue in hospitals will go down, and that will benefit all payers," he said. "It's always been part of the argument that people made for having greater coverage, because without it we end up paying one way or the other."