CRC Memorandum

No. 1069	A publication of the Citizens Research Council of Michigan	November 2002

PDF version of this paper PDF File

Third in a series of papers on Public Policy Issues in the Financing of Michigan Hospitals
This series was made possible by grants from the W.K. Kellogg Foundation
and the Hudson-Webber Foundation

Michigan Hospitals and State Administered Federal Health Insurance Programs:
Payments and Participation

In Brief

Michigan hospitals received $1,178.7 million in payments from the State of Michigan in Fiscal Year 2000 for the Medicaid, Maternal and Child Health, and MIChild programs, including $45.0 million in ongoing and $20.1 million in one-time Medicaid disproportionate share payments. Medicaid payments alone were $1,174.5 million or 99.6 percent of the total.
Total hospital payments from all sources during this period were $13,115.8 million so that state payments represented 9.0 percent of the total, while Medicaid days were 13.5 percent of hospital days statewide.
Hospital costs associated with state administered programs were $1,315.0 million. Payments of $1,113.6 million were $201.4 million less than aggregate costs without disproportionate share hospital payments and $136.3 million less including them.
For all hospitals included in this Memorandum, fee for service Medicaid payments were $67.7 million less than costs while individual hospitals ranged from a positive $8.3 to a negative $6.2 million excluding DSH payments.
Medicaid managed care payments for hospital services were $127.0 million less than costs while individual hospitals differences ranged from a positive $2.1 million to negative $21.2 million excluding DSH payments.
Among individual hospitals included in this Memorandum, the percent of hospital days of care provided to Medicaid eligible persons ranged from 69.5 percent to 0 percent and Medicaid payments as a percent of payment from all sources ranged from 60.5 percent to -3.8 percent.
There appears to be little relationship between the percentage of Medicaid days and the surplus or deficit of hospitals.
In 2000, Medicaid represented 13.5 percent of hospital days statewide. This ranged from 9.6 percent to 16.2 percent among health system areas. Hospitals in the City of Detroit are at 27.4 percent and the remaining hospitals in the southeast area are at 7.9 percent.

Throughout this Memorandum, the term "payment" is used to reflect money received by hospitals, not money paid out by hospitals. See Glossary for definitions of other terms.

Highlights of Prior Papers

This paper, third in a series, discusses state payments to Michigan hospitals for state administered health insurance programs. Previous papers in the series have documented hospital finances (CRC Memorandum 1060, June 2002) and the ways in which health insurance coverage and uninsured/uncompensated care effect hospital finances (CRC Memorandum 1061, June 2002).

Michigan Hospital Finances

Michigan hospitals taken together showed revenues from all sources exceeding expenses resulting in surpluses of $863.0 million in 1998 and $635.4 million in 2000 (6.3 percent of net patient revenues for 1998 and 4.5 percent in 2000). Of the 150 hospitals covered in this report, 65 showed a surplus in net income from patient care in 1998 while 45 did so in 2000.
Financial results for individual hospitals ranged from surpluses of $173.0 million (1998) and $318.0 million (2000) to deficits of $91.1 million (2000) and $72.5 million (1998).
By and large, reimbursements for inpatient and outpatient care do not cover the costs of providing that care.
With the addition of income from other sources, including contributions and investments, 119 of the 150 hospitals showed surpluses in 1998 and 101 in 2000.
All health systems areas experienced overall surpluses in each year in the aggregate.
The City of Detroit health sub-area of the southeast area, showed deficits each year ($18.2 million in 1998 and $55.9 million in 2000).

Health Insurance Coverage and Uninsured/
Uncompensated Care in Michgian Hospitals

The percent of Michigan residents without health insurance (including both private and governmental) for an entire year has been below the national average every year since 1987 with the greatest difference in 1988 (5.5 percent in Michigan vs. 12.2 percent U.S.) and the least difference in 1998 (15.1 percent vs. 11.5 percent).
The highest percentage of uninsured occurred in 1998 near the height of the 1990's economic boom.
The number of Michigan residents without health insurance decreased each year from 1998 through 2000.
In 2000, 72.7 percent of those with insurance in Michigan were covered through an employer-based plan compared with 64.1 percent nationwide.
Michigan hospitals reported charges of $1.1 billion for uninsured and uncompensated care in 2000 with associated costs of $456.2 million after accounting for recoveries, offsets and private payment receipts.
Of the 150 hospitals, 129 showed losses from uninsured and uncompensated care in amounts ranging from $48.6 million to $1,967 million. Ten hospitals reported no cost and 12 hospitals showed positive income as receipts exceeded costs.

Charges, Costs and Payments for State of Michigan Administered Federal Health Insurance Programs

Table 1 shows the amounts charged by Michigan hospitals for inpatient and outpatient care provided for persons eligible for the Medicaid, Maternal and Child Health, and MIChild programs in 2000. It also includes the costs of those services and the amounts paid by the state against those charges and costs. Because of the way Medicaid disproportionate share hospital (DSH) payments are defined, there are conflicting views as to whether charges and costs associated with them are or are not included in hospital charge and cost data. Table 1 reflects the view that DSH related costs are not included in the cost data and the $65.1 million paid through the DSH reimbursement system is not included in data comparing charges, costs and payments but is shown at the bottom of the table. If DSH costs are viewed to be included in cost data, the $194.7 million Medicaid subtotal shortfall of payments to costs is reduced by $65.1 million to $129.6 million.

Individual hospital DSH payments are included in data showing total payments from the state in Table 2.

Table 1 Michigan Hospitals Charges, Costs and Payments for Services to Persons Eligible for State Administered Federal Insurance Programs Fiscal Year Ending September 30, 2000
Category:	Charges	Costs	Payments	Difference Cost To Charges	Difference Cost To Payments
Medicaid:
Fee for service:
Inpatient & Outpatient	$1,183,617,208	$630,200,605	$492,551,366	$(553,416,603)
Less MIP Adjustments	0	0	(18,454,523)
Final Inpatient & Outpatient	$1,183,617,208	$630,200,605	$474,096,843	$(553,416,603)	$(156,103,762)
Graduate Medical Education	Included Above	Included Above	88,428,417		88,428,417
Subtotal -Medicaid FFS	$1,183,617,208	$630,200,605	$562,525,260	$(553,416,603)	$ (67,675,345)
Managed Care Organizations:
Payments for Hospital Care	$1,201,131,785	$673,867,564	$460,845,425	$(527,264,221)	$(213,022,139)
Graduate Medical Education	Included Above	Included Above	86,000,792		86,000,792
Subtotal - Medicaid MCO	$1,201,131,785	$673,867,564	$546,846,217	$(527,264,221)	$(127,021,347)
Subtotal Medicaid	$2,384,748,993	$1,304,068,169	$1,109,371,477	$(1,080,680,824)	$(194,696,692)
Maternal and Child Health:
Fee for service	$ 14,208,426	$ 9,620,837	$ 3,476,338	$(4,587,589)	$(6,125,436)
Managed Care	1,867,922	1,306,618	760,806	(561,304)	(545,812)
Subtotal - M&CH	$ 16,076,348	$ 10,927,455	$ 4,237,144	$(5,148,893)	$(6,671,248)
MIChild	$27,687	$19,103	$9,289	$ (8,584)	$ (9,814)
Total	$2,400,853,028	$1,315,014,727	$1,113,617,910	$(1,085,838,301)	$(201,377,754)
Disproportionate Share:
Fee for service			$ 31,120,526
Managed Care			33,960,567
Subtotal - Disproportionate Share			$ 65,081,093
Total			$1,178,699,003
NOTES: Does not include data for psychiatric hospitals (6) and 14 other hospitals without complete data for both 1998 and 2000. Hospital Fiscal Year Ends 10/1/99 - 9/30/00 Source: Indigent Volume Reports filed with the Michigan Department of Community Health

Payments to Hospitals

Michigan hospitals showed total net patient revenue from all sources of $14.3 billion in Fiscal Year 2000 (See CRC Memorandum 1060, June 2, 2002. Payments for the period were $13.1 billion so that growth in accounts receivable and other factors resulted in a $1.2 billion gap between income recorded and income received.

Hospital payments for state administered federal programs are made in 5 ways: fees for service (FFS); managed care organization (MCO); graduate medical education (GME); primary care pool (PCP); and, disproportionate share hospital (DSH) payments. Additionally, many hospitals participate in the Medicaid Interim Payment (MIP) program. Eligible hospitals receive fee for service payments based on experience rather than individual billings. This permits hospitals time to fully complete medical record and other data on the Medicaid invoice without a corresponding wait for payment. Quarterly adjustments can be made to the MIP amount when indicated. At the end of each year, individual invoice billings and MIP payment amounts are reconciled and adjustments are processed.

Table 2 shows Fiscal Year 2000 total payments to hospitals from all sources and payments from the State of Michigan for programs it administers. Hospitals are ranked from the highest percent of state payments to the lowest. Of the top 10 hospitals, 8 are located in the City of Detroit.

Table 2
Hospital Payments from State Administered Health Insurance Programs
Fiscal Year Ending September 30, 2000

Hospital Surplus/Deficit and Medicaid Participation

Table 1 shows that hospital payments from Medicaid were almost evenly divided between fee for service payments made directly from the state and payments received from managed care organizations that use their per capita Medicaid funding to purchase hospital care through agreements with individual hospitals. Where no agreement exists, MCOs pay the Medicaid fee for service rate. Table 3 details the percentage of all hospital days represented by Medicaid patients, both fee for service and managed care, and shows the surplus or deficit for the year. The financial results of hospitals do not reflect the percent of Medicaid days in any statistically meaningful way.

Table 3
Fee for Service and Managed Care Organization Medicaid Days as a Percent of Total Days
for Michigan Hospitals and Hospital Year End Surplus(Deficit) Ranked by Percent of Medicaid Days
Fiscal Year Ending September 30, 2000

Medicaid Charges, Costs and Payments

Medicaid only hospital charges, costs and payments for both fee for service and managed care organization reimbursed care are shown in Table 4. Payments do not include the DSH amount totaling $65.1 million.

On the fee for service side, individual hospital payments in excess of costs range from a positive $8.3 million to a negative $6.2 million with 22 hospitals receiving payments in excess of costs and 142 receiving less than costs before DSH payments. Payments, without DSH, through managed care organizations resulted in a range of payments exceeding costs by $2.1 million to costs exceeding payments by $21.2 million with 27 hospitals where payments were equal to or more than costs, 99 showing the reverse and 24 that did not have any MCO costs or payments.

Table 4
Michigan Hospitals Medicaid Costs and Payments for Fee for Service and Managed Care
Organization Care to Persons Eligible for State Administered Federal Insurance Programs
Payments do not Reflect Disproportionate Share Amounts
Fiscal Year Ending September 30, 2000

There are 16 hospital corporations that are designated as having affiliated hospitals. The number of affiliated hospitals in a system ranges from 1 to 9. Three systems showed payments above costs with and without DSH payments (See web site for tables including DSH amounts). The remainder received payments that were less than costs.

Table 5 Michigan Hospitals Medicaid Costs and Payments for Fee for Service and Managed Care Organization Care to Persons Eligible for State Administered Federal Insurance Programs For Affiliated Hospital Systems Payments do not Reflect Disproportionate Share Amounts Fiscal Year Ending September 30, 2000
		Fee For Service				Managed Care Organization
Hospital Name	Number of System Hospitals in Memorandum	Inpatient & Outpatient Costs	Total Final Payments	Difference Payments to Costs	Rank	Total Medicaid Costs	Total Medicaid Payments	Difference Payments to Costs	Rank	Difference Payments to Costs Combined	Rank
Detroit-Macomb Hospital Corp.	1	$ 8,928,367	$ 9,482,207	$ 553,840	2	$30,715,815	$31,553,423	$ 837,608	3	$ 1,391,448	1
William Beaumont Hospital Corp.	2	13,665,003	14,691,243	1,026,240	1	9,416,139	9,556,493	140,354	5	1,166,594	2
Bon Secours Cottage Health Services	2	3,012,549	1,832,948	-1,179,601	6	1,080,820	2,384,445	1,303,625	1	124,024	3
Mercy Health Services	3	4,840,050	4,417,172	-422,878	4	2,183,150	1,964,335	-218,815	7	-641,693	4
Horizon Health System	2	5,606,436	4,224,704	-1,381,732	8	2,284,468	2,952,147	667,678	4	-714,054	5
Sisters of St. Joseph Health System	3	4,513,645	3,534,778	-978,867	5	4,270,659	4,065,780	-204,879	6	-1,183,746	6
Munson Healthcare	2	8,120,992	6,852,902	-1,268,090	7	3,912,375	2,819,289	-1,093,086	9	-2,361,176	7
Genesys Regional Medical Center	1	7,204,870	5,663,661	-1,541,209	9	15,448,535	14,364,669	-1,083,866	8	-2,625,075	8
McLaren Health Care Corp.	1	7,141,932	5,409,852	-1,732,080	10	3,925,687	2,577,591	-1,348,096	10	-3,080,177	9
St. John Health System	4	37,532,320	32,942,528	-4,589,792	13	34,843,748	36,107,791	1,264,043	2	-3,325,749	10
Mid-Michigan Regional Medical Center	3	5,808,167	3,764,922	-2,043,245	12	5,307,482	3,763,183	-1,544,299	11	-3,587,544	11
Bronson Group	2	16,155,944	14,344,345	-1,811,599	11	12,005,784	8,144,329	-3,861,454	12	-5,673,054	12
Henry Ford Health System	2	33,282,283	32,880,660	-401,623	3	33,872,519	23,645,884	-10,226,635	14	-10,628,258	13
Oakwood Healthcare, Inc.	5	29,037,886	21,868,109	-7,169,777	15	17,094,692	10,740,718	-6,353,974	13	-13,523,751	14
Trinity Health/ Sisters of Mercy Health Corp.	9	38,244,203	30,136,676	-8,107,527	16	50,124,666	27,383,298	-22,741,368	15	-30,848,895	15
Detroit Medical Center	6	137,555,134	131,389,351	-6,165,783	14	182,190,378	142,992,939	-39,197,438	16	-45,363,222	16

Health Systems Planning Areas

In the late 1960s, the state designated 8 health systems planning areas. Table 6 reflects the percent of Medicaid days and the financial results for these areas with the City of Detroit separated from the southeast area. City of Detroit hospitals provided 27.4 percent of their total hospitals days to Medicaid eligible persons, while the remainder of Southeast provided 7.9 percent. The statewide figure was 13.5 percent. Individual hospitals sorted by health systems planning areas are shown in a table available on the website. Over half of the $821.8 million statewide loss in net income from services to patients occurred in the City of Detroit and the city shows the only deficit amount. While a high percentage of Medicaid days does not appear to predict individual hospital financial results, it does correlate somewhat with health system area results.

Table 6 Percent Medicaid Days and Hospital Net Patient Income and Surplus(Deficit) by Health System Areas Fiscal Year Ending September 30, 2000
Health System Area	Area Name	Percent Medicaid Days	Net Income from Services To Patients	Surplus (Deficit)
	Southeast without Detroit	7.9	$(107,605,867)	$482,619,440
	City of Detroit	27.4	(418,415,822)	(78,738,434)
Area 1	Southeast	13.9	(526,021,689)	403,881,006
Area 2	Mid-South	13.2	(41,035,547)	23,986,787
Area 3	Southwest	14.2	(20,577,575)	56,028,270
Area 4	West	12.7	(132,497,701)	67,944,563
Area 5	Genesee	16.2	(32,464,936)	1,907,139
Area 6	East Central	11.6	(43,882,486)	23,227,944
Area 7	North Central	9.6	(20,042,056)	19,207,288
Area 8	Upper Peninsula	10.0	(5,242,954)	20,053,308
Total - All Areas		13.5	$ (821,764,944)	$616,236,305
Source: Michigan Department of Community Health Note: Amended reports reflected in this Memorandum lowered the overall surplus(deficit) reported in Memorandum 1060 from $635.4 million to the $616.2 million reflected here (see website for individual hospital changes).

Summary

Payments by the State of Michigan for state administered federal health insurance programs fell short of costs incurred by Michigan hospitals in 2000 by $201.4 million of which $194.7 million was in the Medicaid program if DSH payments are not included. If DSH is included the shortfall totals $136.3 million of which $129.6 million is Medicaid. Had the state reimbursed hospitals so that payments and costs were equal, hospitals would have had a collective loss in net patient income of $620.4 million rather than $821.8 million and collective surpluses would have been $817.6 million compared to $616.2 million.

Glossary

Medicaid. A state administered federal health insurance program for persons with low incomes established by Title XIX of the Social Security Act.

Maternal and Child Health (MCH). Federal block grant funds are available under the terms of Title V of the Social Security Act and are to be used for: preventive and primary care services for pregnant women, mothers, and infants up to age one; preventive and primary care services for children; and services for children with special health care needs.

MIChild is the Michigan name for the federal State Children's Health Insurance Program (SCHIP) established by Title XXI of the Social Security Act. It provides a broad range of health services to persons under the age of 19 in low-income families. Benefits include: regular medical checkups; immunizations; emergency care; dental care; pharmacy; hospital care; prenatal care and delivery; vision and hearing; mental health; and, substance abuse services.

Disproportionate Share Hospital Payments (DSH). In 1981, Congress established the Medicaid DSH program to provide financial relief to hospitals serving the poor and to maintain hospital access for this group. Payments must be made to hospitals that have a Medicaid inpatient use rate at least one standard deviation above the mean for the state or a low-income use rate of 25 percent or more. States may make DSH payments to hospitals with Medicaid inpatient use rates as low as 1 percent. There are other aspects of DSH payments, but it is this that is reflected in this Memorandum.

Fee for Service (FFS) Payments. Hospitals receive Medicaid payments directly from the Michigan Department of Community Health based on invoices received. Payments are based on rates established by the state.

Managed Care Payments. Managed care organizations now pay for about one-half of Medicaid hospital services. Payments are made on the basis of rates negotiated between the hospital and a managed care organization or at the fee for service rate if no agreement exists.

Graduate Medical Education (GME). Teaching hospitals receive separate Medicaid payments for the cost of providing medical education programs for interns and residents.

Primary Care Education Pool (PCP). Payments are made from the Primary Care Pool to hospitals on the basis of providing medical education to physicians preparing to practice primary care as opposed to specialty care.

About the Michigan Data

The following tables, charts and analyses are based on information filed for the state fiscal year 2000. One hundred seventy hospitals filed cost reports for the periods in this series of memoranda. Twenty of them are not included. Of these, 6 are psychiatric hospitals, 6 closed between 1998 and 2000 and 8 did not have complete data for both years. A listing of these hospitals can be found on page 9 of Memorandum 1060 or on the CRC website.

The 2000 data is for the period October 1, 1999 through September 30, 2000. Hospital fiscal years end at different times (most are either December 31 or June 30) so that the impact of a particular federal or state policy change or reimbursement alteration or change in economic climate can be reflected unevenly in the data of different hospitals.

Cost, payment and hospital day figures come from Indigent Volume reports filed with the Michigan Department of Community Health. Net income from services to patients and surplus/deficit amounts are taken from annual cost reports filed with the same department.

Data Characteristics

Michigan hospitals are required to file an Indigent Volume report along with the Medicaid cost report every year. The information from this report is used to calculate a special payment that totaled $45.0 million in 2000 to the 46 hospitals determined to be providing a disproportionate share of care to indigent persons (See Table 2). Because some 2/3 of the hospitals do not receive payments as a result of filing the report and because not all reports have been independently audited, it is possible that information is not as accurate as it might otherwise be. The data has been submitted to the state by each facility and represents information in hospital files.