Burden Sharing for Hospitals

July 15, 1995

In the absence of national health care reform, market pressures are transforming the medical landscape.

For hospitals, competitive pressures have been particularly challenging, especially for city institutions that treat people who have no health insurance and cannot pay the bill. As increasing numbers of paying patients are steered by managed care plans to hospitals that can keep the price tag low, the cost of uncompensated care creates a serious competitive disadvantage.

Fortunately for hospitals like the University of Maryland, Johns Hopkins or Liberty Medical Center, a Supreme Court decision has eliminated any doubts about the states' authority to oversee hospital costs and, in Maryland's case, clears the way for implementing regulations that require all hospitals to share the cost of uncompensated care.

That scheme may violate pure market principles, but it serves to protect higher values -- particularly that of fairness. In a purely market-driven health care system, the facilities that could draw the most paying customers would survive and thrive, while others would either adapt or disappear. But this kind of system would also be willing to deny health care to an uninsured person, and that is unacceptable in a civilized society.

A pure market system would also give little thought to the future of health care, since teaching hospitals incur higher costs in training new generations of physicians and researchers. Allowing medical education to suffer would change the landscape of medicine in Maryland in unacceptable ways; two of the state's premier hospitals, Johns Hopkins and the University of Maryland, carry dual burdens -- the cost of a great deal of charity care as well as of medical education.

Maryland's plan for sharing the burden of uncompensated care does not please everyone -- namely some of the hospitals in suburban areas that provide relatively little uncompensated care. But it will bring welcome relief to many urban hospitals, in some cases lowering the burden of charity care by several percentage points. That is a large step toward fairness.

The state needs to go further by requiring free-standing surgical centers and ambulatory care facilities to participate as well. Though the number of these centers is increasing rapidly, they ++ represent a small share of total hospital revenues. Even so, the principal of fairness is the same: Charity care is a cost all these medical facilities should share.

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