Personal and Confidential

Mr. Don Wherry

January 10,1979

Brendan Hospital

Lockhart, East State

Dear Don,

The Board of Trustees of Brendan Hospital, on January 8, 1979, unanimously approved a 10 percent increase in your annual salary along with a $500 increase in automobile allowance for 1979. The above increases will result in a per annum salary of $57,750 and an automobile allowance of $2,300. Your receipt of this letter provides you with the authority to make the stipulated adjustments effective January 1,1979.

Our board believes that you have done an outstanding job as our chief executive officer and hopes that the above increases have fairly rewarded your effort.

Very truly yours,

Tony DeFalco, President

Brendan Hospital, Board of Trustees

Case Q What Happens When Patients Cannot Pay?

Ann Scheck McAlearney and Paula H. Song

Susan Lawler, CEO of Sunrise Memorial Hospital, leaned back in her chair to reflect on the topic just debated at this morning's board meeting. She was delighted that the hospital was financially stable, but, as echoed in the comments of several board members during the meeting, she thought the not-forprofit hospital should be doing more for its community. While each year the hospital reported that it had provided a substantial level of uncompensated care, given the morning's discussion, it seemed clear that now was a good time to revisit this issue. As Lawler knew, a hospital's report of its uncompensated care level consists of both charity care and bad debt. While charity care is care provided to individuals for which the hospital does not ever expect to be paid, bad debt represents care for which the hospital bills and reasonably expects to be paid, but ultimately is unable to collect. Charity care visits do not appear as an expense on the hospital's financial statements. Rather, the dollar value of charity care is included in a note to the financial statements. In contrast, the revenue and expense associated with visits characterized as bad debt appear on the hospital's income statements. For Sunrise, as at all hospitals, reporting uncompensated care using these two categories has several implications. With respect to bad debt, the most salient issue is how aggressively the hospital pursues payments. Lawler was comfortable with this area, and aware that the hospital would never be accused of overly aggressive collections practices as had been reported by several other hospitals in an adjacent state. However, with respect to charity care, she was less convinced. The current charity care policy was based on family income level. But Lawler wondered whether this policy was designed as a marketing tool to protect Sunrise Memorial's tax-exempt status, rather than a tool to appropriately decide who should receive charity care. Lawler was particularly concerned that the hospital may be missing opportunities to help patients and the community with their healthcare needs. While she knew the Sunrise emergency department (ED) was legally obligated to stabilize all patients who presented there for care regardless of ability to pay (i.e., under the legal restrictions associated with the Emergency Medical Treatment and Active Labor Act), she also knew there were no plans or policies in place to help those patients when they were discharged from the ED. Further, she knew that if these patients did not have another place to go for care (i.e., a "medical home"), they would be at risk for several downstream problems, such as repeat ED visits or declining health, if they chose not to pursue recommended follow-up care. While there was a federally qualified health center (FQHC) not too far from Sunrise, no effort had been made to establish any relationships with the FQHC, and Lawler wondered whether this was even possible.

A Charity Care Challenge

Not long after the board meeting, Lawler learned of the case of Jeremy Spring, a patient who had arrived at the Sunrise ED complaining of severe pain in his arm. After being processed through triage, Spring was admitted for treatment of myocardial infarction (a heart attack). He ended up staying at Sunrise for a full week due to the need to both treat his acute condition and manage several complications associated with his chronic heart disease. After Spring was stabilized, a Sunrise case manager, Anneliese Campbell, asked him about his insurance status and discovered he had no coverage. Upon further investigation Campbell determined that Spring's income level was around 250 percent of the federal poverty level, thus slightly too high for him to qualify for the hospital's free care program. Campbell raised this issue with her supervisor, Owen Williams, and they agreed that Spring's situation was indeed complicated. While the patient did not qualify for the hospital's charity care program, they were concerned that the costs associated with Spring's stay might make an insurmountable financial burden for him. Further, Spring's condition upon arrival at Sunrise indicated that he had not received appropriate primary care for some time, and, as a result, had a number of comorbid conditions that contributed to his ill health and long hospital stay. Campbell also pointed out that the hospital's doctors had already expressed concern about Spring's future well-being. While Spring clearly needed both short-term follow-up and long-term monitoring, his past history provided no evidence that he would adhere to a recommended treatment plan because of both limited financial means and no "medical home," or place where they could refer him for care within the community. Williams and Campbell scheduled a meeting with the hospital's chief financial officer (CFO), Kelly Brady, to raise their concerns. Brady was aware of the hospital's charity care policy, but felt her hands were tied in this situation. She advised Williams and Campbell to "do what they could" to help Spring make the transition back to the community, and pointed out that the local FQHC might be an appropriate place to refer Spring for ongoing care.

Now What?

While Lawler supported her CFO, she was not comfortable with the decision that had been made. In particular, she was unconvinced that discharging a low-income patient with a referral slip to go to the local FQHC was sufficient. She knew that the most likely next chapter of Spring's story would be another expensive visit to the Sunrise ED, and, potentially, another hospital stay. Given Sunrise's financial condition, she sensed there was an opportunity to address the case of Spring and other patients with similar situations, but she was unsure how or where to start.

Short Case 26

The Conflicted HMO Manager

Anthony R. Kovner

Bill Brown had built up University Hospital's HMO over the past ten years so that now it had 100,000 members. His boss, Jim Edgar, had decided to sell the insurance part of the business (retaining the medical groups) because University wasn't in the insurance business. Brown was asked to recruit some bidders, one of whom, Liberty National, Edgar came to prefer because of its financial strength and excellent reputation. In the process of working with Liberty National, Brown learned that it wanted to hire him, after the sale, to be the president of its regional HMO activities. Brown told Edgar what was likely to happen in this regard. The deal was subsequently approved by Brown's board (of the HMO) and by Edgar's board (of the hospital). Two years after the sale, Brown works for Liberty and is making $5 million a year, while University is losing $5 million a year. Joe Kelly, University's new CEO, figures out that the contract that Brown negotiated for University was highly favorable to Liberty and now University can't get out of it for another nine years.

Based on the provided information please answer following questions.

• How would you approach the case of Jeremy Spring? Do you agree with Susan Lawler that simply discharging the patient with a referral is insufficient?
• As you are thinking about your answer, consider how far the responsibilities of a health care provider (such as a hospital) go. Are hospitals responsible for patient well-being after discharge? Should they be?
• Also consider how the recent push toward quality care reimbursement contracts would affect Lawler's thinking. Would anything change in your answer if these quality incentives were in place? Why?