Health Reformer's Lexicon: Uncompensated Care

The Health Reformer's Lexicon is a weekly feature that will examine key words, terms and phrases in health reform and explore their meaning and orbit.

The Term: Uncompensated care

Researchers from the Urban Institute define it as “medical care that is either freely donated by providers or results in an unpaid bill.”

The American Hospital Association defines it in more exacting detail as “the sum of a hospital’s ‘bad debt’ and the charity care it provides.” AHA elaborates:

In terms of accounting, bad debt consists of services for which hospitals anticipated but did not receive payment. Charity care, in contrast, consists of services for which hospitals neither received, nor expected to receive, payment because they had determined the patient’s inability to pay. In practice, however, hospitals have difficulty in distinguishing bad debt from charity care.

Why It Matters: In most cases, uncompensated care is provided to people without insurance. One estimate pegged the amount of uncompensated care given to uninsured people in America at more than $50 billion a year. Government underwrites more than $40 billion of it through Medicare and Medicaid Disproportionate Share Hospital (DSH) payments and other means.

Health-policy experts have argued that failing to enact reform would have led to greater levels of uncompensated care, perhaps even double the amount. Conversely, analysts have estimated that by insuring tens of millions more people, reform will dramatically decrease uncompensated care—and thus provide substantial spending offsets for federal and state governments.

Indeed, the final reform bill signed by President Obama reduces Medicare DSH payments by 75 percent and then begins adjusting them based on the percentage of the population uninsured and the amount of uncompensated care provided. Medicaid DSH payments are set to be reduced, too.

Roots: It is difficult to pinpoint precisely when the term “uncompensated care” was coined, but a January 1974 article in the American Society of Law & Medicine’s Medicolegal News hints at its origins:

When the Hospital Construction and Survey Act of 1946, more popularly known as the Hill-Burton Act, was passed by Congress, facilities receiving federal funding were required to assure that they would provide a “reasonable volume of services to persona unable to pay therefor.” The general legislative intent was that this would help provide access to medical care to a segment of the population that had hitherto been denied care or had been reluctant to seek it because of lack of financial resources…

As became increasingly apparent throughout the next two and one-half decades, many hospitals treated the statutory mandate to deliver uncompensated services as mere surplusage. If they were required to account at all for the volume of uncompensated care provided, they simply wrote off their bad debts for the year as Hill-Burton qualifying services…

Where the Term Appears: An expected drop in uncompensated care is factored into the final health reform law in the form of the aforementioned cuts to Medicare and Medicaid DSH payments. The term—and the dollar figures associated with it—also continue to appear in post-game analyses and debates about the costs, benefits and fallout of enacting reform.

Previous Lexicon entries include:
- Meaningful Use
- Patient Centered Medical Home
- Individual Mandate