Dana Goldman holds the Leonard D. Schaeffer chair and is the director of the University of Southern California Schaeffer Center for Health Policy and Economics.
August 22, 2016, 3:21 AM – Paradoxically, concierge care may be the best hope for ensuring continued access to safety-net services for the indigent uninsured.
Most hospitals provide care to people who cannot afford it. This mission is critical to the tax status of non-profits, but for-profits also provide charity care. To finance these services, hospitals have always relied on a mix of payments from private insurers, Medicare and Medicaid.
The Affordable Care Act has alleviated some of this burden. Hospitals in states that chose to expand Medicaid, for example, saw their uncompensated care decline by 35 percent the year the law took effect. (Uncompensated care includes both charitable care and bad debt – i.e., charges that are issued but never paid.)
But the charitable mission is still under threat. Reimbursements for treating indigent patients are very low, and the Affordable Care Act will reduce supplemental payments for such care to the point where each dollar of service to a Medicaid patient is reimbursed only 93 cents. It is so bad that the I.R.S. counts participation in Medicaid as a “community benefit” for determining a hospital’s tax status. Medicare patients traditionally helped make up the difference, but reimbursement in that program has not kept pace with cost inflation, and hospitals, on average, are now losing money on each Medicare patient.
How can hospitals continue to support their safety-net? It depends whether the hospital is in a competitive market. Historically, hospitals in less competitive markets have relied on raising prices for private payers — with their relatively generous reimbursement — to cross-subsidize charity care “without serious financial penalty or competitive handicap.” But health insurers have gotten better over time at negotiating away these margins. Meanwhile, hospitals in more competitive markets lack the market power to raise prices, so must resort to cost-cutting just to survive.
In both cases, hospital executives and their trustees must find ways to grow margins and retain favorable bond ratings—i.e., access to capital at low cost. This is where concierge medicine comes in. Concierge medicine, where patients pay a fee for enhanced access to medical services such as no-wait office visits or more face-time with physicians, allows hospitals to identify the wealthy consumers and charge them more for what is essentially the same care.
This pricing strategy is common in consumer products: hardcover books provide the same content as their paperback counterparts, but look better on the shelf; first-class air passengers arrive at the same time as the coach passengers, but enjoy better food and more comfortable seats. And the significantly higher prices paid for these extras translate into higher profits for the overall enterprise.
In the case of hospitals, the profits from concierge care will be used to finance unprofitable activities such as charitable care. Just as some coach passengers resent first class travelers with their luxurious leg room and complimentary champagne, some will resent concierge patients getting preferential health care services. But concierge care may be the best way to keep the hospital’s charitable mission flying.