Sources:

(1) Community Health Network of San Francisco, Department of Public Health, Sliding Fee Schedule.
(2) Income tax estimates calculated from federal and state income tax forms and tax schedules.
(3) Expenses per month for a family of four with two working parents in the Bay Area are taken from Making Ends Meet: How Much Does It Cost to Raise a Family in California, published by the California Budget Project, September 2001.

Clearly, the fee schedule is not equitable given the disparities between discretionary monthly income as estimated and used as a proxy for relative ability to pay. Inpatient fees as a percentage of discretionary monthly income are 15 percent for a patient at 500 percent of the federal poverty level, while they are 26 percent for a patient at 240 percent of the federal poverty level. Inpatient fees actually exceed discretionary income, which is negative, for a patient at 100 percent of the federal poverty level. This disparity is increased when consideration is given to the fact that charges can be financed and paid in installments. Further, at 501 percent of the federal poverty level, a patient jumps from paying $550 dollars for an inpatient admission to being billed for full charges, which may be thousands of dollars.

Another inequitable outcome of the present fee structure is that it is not based on actual charges incurred. This is especially critical when reviewing inpatient charges because fees are assessed based on admission, rather than on days in the hospital or level of care. A patient in the Sliding Scale Program is charged the same amount whether the stay is for one day or for six weeks and regardless of the level of care provided. While this may be appropriate for those at the lower end of the poverty level, at the higher end, when a patient is able to pay, he or she receives a disproportionate subsidy from the Hospital. For example, a patient in the Sliding Scale Program will be charged the same amount whether the care provided is for a broken leg or a critical head injury. While a flat fee for a patient at 100 percent of the poverty level may be appropriate because payment is difficult at any level, a patient at 500 percent who has some financial flexibility has an advantage when receiving equal treatment.

Economic Approach to the Sliding Scale

The primary objective of San Francisco General Hospital is to provide medical services to the residents of San Francisco regardless of their ability to pay. However, the Hospital, as an enterprise fund has a secondary objective of financial viability, which is increasingly important in today’s environment of reduced governmental funding for health services. Accordingly, the Hospital should be reviewing ways to increase its revenues by increasing reimbursement rates.

One way to increase the reimbursement rates of self-pay patients is to expand the Sliding Scale Program to include all patients who are not covered by a third party payer and base the fees on the patient’s ability to pay. This is an economic approach to an area that previously has not been managed from a business perspective.

By charging based on ability to pay, the Hospital should expect an increase in reimbursement rates. In the case of the current Sliding Scale Program, patients will no longer be faced with subsidized rates that are less than what they would be willing to pay. For patients that are currently charged at the full rate, reduced rates would decrease the risk of default. For example, a patient may opt to default on a large bill of $25,000, but at some lower level, say $5,000, the patient would be willing to pay or at least attempt payment for the services received. Further, attitudes toward financing health care charges may need to be adjusted when considering that many individuals today finance far less important things than health care.

In fiscal year 2001-2002, revenue from self-pay patients totaled $1.2 million, which was only 5.8 percent of $20.4 million in total self-pay patient charges. Revenues received from the Sliding Scale Program are commingled with charity care and are not independently monitored. However, the Sliding Scale Program and charity care combined had only $641,788 in revenues, a 0.9 percent reimbursement rate on total charges of $70.9 million. A 10 percent improvement in collections, which is a very small increase in the reimbursement rate, would bring in an estimated $181,700 in additional revenues annually, while a 20 percent improvement would bring in an additional $363,400 annually.

Ultimately, the establishment of a Sliding Scale Program based on a patient’s ability to pay is a policy decision for the Board of Supervisors. Management has expressed concern that such a policy would discourage patients from seeking out health care services. To address this issue, analysis should include the thresholds of patient willingness to pay for services for which default rates may serve as a proxy. Additionally, analysis will have to consider any revenue offsets. Management indicated that the Department of Public Health receives Disproportionate Share Hospital funds under SB 855 based on charity care provided to patients. The extent to which SB 855 revenues are reduced is increased should be measured against any estimated gains in patient collections. Before debate on this policy issue can occur, then, the Hospital must gather and analyze relevant data and information.

San Francisco General Hospital should gather and analyze historical data and information on the Sliding Scale Program, the current fee structure, self-pay accounts, and default rates to determine the appropriate levels to set fees for all self-pay patients based on their ability to pay. Consideration should be given to any industry data and information available. Further, analysis should determine a cap on patient fees for the provision of catastrophic medical services. This cap will serve not only to facilitate payment as demonstrated in the example provided in the previous paragraph, it also serves as a realistic, goodwill gesture on the part of the Hospital.

Conclusions

At San Francisco General Hospital, patients with limited incomes are eligible for subsidized fees through the Sliding Scale Program. However, the fee structure is not based on any analysis of a patient’s ability to pay, which has resulted in the inequitable application of the Hospital’s subsidy for these patient charges. If the Hospital were to expand the Sliding Scale Program to apply to all uninsured patients and base the fees on patients’ ability to pay, the Hospital could expect increased reimbursement rates and increased revenues.

Recommendations

The Finance Department should: