The Spokane areas four major hospitals together spent about $12.3 million on charity care last year and wrote off about another $13.8 million in bad debt. Though that combined $26.1 million rose just 4 percent last year, some first-quarter figures suggest a potential sharper rate of increase this year.


Hospital representatives say that those costs likely will ratchet up even faster if the Washington Legislaturein its upcoming special sessioncuts deeply into health-care funding to help solve state budget woes.


You have more people unemployed. As the economy goes, one can assume the trends for charity care will increase. We treat patients no matter their ability to pay, and we do not distinguish what type of care they require, says Janice Marich, spokeswoman for Empire Health Services, which operates Deaconess Medical Center and Valley Hospital & Medical Center.


However, if federal and state reimbursement rates paid to hospitals to cover the costs of caring for some segments of the population continue their downward trend, she says, What will happen is not the refusal to treat people. What will happen is the inability to keep your doors open to provide care at all.


Charity care is the term hospitals use for care they provide at no charge, typically based on qualifying financial criteria, to people who lack the health insurance, government subsidies, or personal resources to pay for the care they require. Bad debt, which the hospitals monitor separately, refers to cases in which the patients simply fail to pay up, refuse to apply for charity care, or have some insurance or other financial resources, but not enough to cover the large bills they ultimately incur.


The cost of providing charity care historically has equated to only a small percentage of Spokane-area hospitals overall revenues, and still does. Its a growing contributor, though, particularly in the current economy, to the tightening financial squeeze on all of the states hospitals and rural hospital districts.


It appears to be increasing at a more rapid rate recently, says Cassie Sauer, director of advocacy and public relations for the Washington State Hospital Association.


Figures compiled by the association show that, combined, annual charity care and bad-debt costs incurred by the states 97 hospitals climbed from $153.6 million in 1996 to $218.8 million last year, which would equate to about a 6 percent annual average increase. Actual charity-care costs, by themselves, hovered between about $68 million and $75 million annually during that period, but jumped last year, to $103.4 million.


Sauer says that sharp leap certainly is of concern to our hospitals.


While it certainly is a part of their mission to provide free care, it is also a financial strain to do so, particularly when the costs rise as they have in the last year, she says. The money has to come from somewhereeither shifting costs to people who do pay, or cutting services.


The states adoption of a budget like the one the Senate approved before the Legislature adjourned its regular session recently would make those charity-care costs spike dramatically, she claims.


That budget, among other things, would reduce the number of people that can be on state-subsidized basic health insurance by 32,000 and change the threshold for parents seeking Medicaid coverage for children from 250 percent to 175 percent of the federal poverty levels. Currently, children in a family of four making $46,000 a year qualify for Medicaid coverage, but that would fall to $32,200 under the Senate budget plan. The plan also would cut prenatal care for illegal alien women.


We are very concerned about the state cutting thousands and thousands of low-income people from health insurance and simultaneously cutting dramatically the money available to hospitals for treating very sick or seriously injured low-income uninsured people who do not qualify for Medicaid, Sauer says. Doing so will leave those people who need health care no other options than hospital charity care. This would create a crisis in our hospitals, particularly in our emergency rooms.


On shaky ground


Part of the problem, Sauer says, is that many hospitals already are struggling financially.


Id say there are about a third of the hospitals in the state that are on shaky ground and 5 to 10 percent are on really shaky ground, she says. The average operating margin for hospitals in the state climbed to 2.9 percent last year from 2.1 percent in 2001, but that still was well below the 5 percent margin that bond-rating agencies look for as a benchmark indicator for financial health and ongoing viability, she says.


Sauer emphasizes, also, that the 2.9 percent statewide average doesnt reflect the widely varying degrees of hospital health across the state, particularly in Eastern and Central Washington. She notes, for example, that the associations northeast council, which includes 14 hospitals from Clarkston to Colville, including the four main hospitals here and Spokanes Shriners Hospital for Children, had a mere 1 percent average operating margin last year, up from a negative 0.7 percent in 2001.


Even thats not as concerning, though, as a group of Columbia Basin hospitals that most recently had a negative 4.5 percent average operating margin, she says.


Its been 20 years since a hospital closed in the state, she says, the last one in Metaline Falls, about 70 miles north of Spokane. However, she adds, I think there are four public hospital districts that are operating on registered warrants with the county, meaning the county is carrying their debts loads because they no longer are able to do pay their debts on their own.


Lincoln County Public Hospital District No. 3, which serves about two-thirds of that county, is mulling shutting down a nearly fully occupied 68-bed nursing home at the Lincoln Hospital in Davenport, about 35 miles west of Spokane, due to inadequate funding, says Tom Martin, hospital superintendent.


We have been getting reductions in reimbursement for operating the nursing home over the last few years. Its looking pretty bleak, Martin says. The broader effects of such a closure are a major concern, he says, because the district operates not only the nursing home at the 25-bed hospital, but also an ambulance service and three medical clinics.


If one is affected, its going to have a drastic effect on the whole health-care community. The whole system becomes weaker, he asserts.


Of a potential increase in charity care and bad debt, he says, It has an effect; its a cumulative thing. Put it together with the other cuts that are proposed. Its another rock in your swim trunks when youre trying to get across the river. Its just an added drag.


The rural areas have a greater proportion of elderly and low-income residents, and thus would be affected disproportionately by any funding cuts, Martin contends. The loss of health-care jobs in the rural communities, which offer some of the highest-paying jobs in those areas, also would constitute a serious blow, he says.


The Davenport nursing home lost about $750,000 last year, despite running at almost full capacity, Martin says. This is an essential service for these rural communities, he says. It should be available if youre going to have any quality of life. Were at a point now where its just not viable.


To cover the nursing homes costs, the district has been tapping funds that should be held in reserve for capital improvements, he says. If we dont get relief, he says, we may need to curtail nursing-home services within a year.


The situation is even worse on the west side of the county, which is served by Odessa Public Hospital District No. 1, Martin says. That district, which operates a 20-bed hospital and 38-bed nursing home in Odessa, an ambulance service, and a medical clinic, may be forced to make dramatic cuts within the next few months, depending on what action the Legislature takes, he says.


Spokane-area hospitals,


For the most part, hospitals here, although feeling greater financial pressure, say they havent yet seen an upward trend in charity care and bad-debt costs that can be tied to the poor economy.


They agree, however, that such costs would jump if more people begin losing health-care coverage due to legislative action.


Sacred Heart Medical Center, Spokanes largest hospital, spent about a third more on charity care in the first quarter of this year than it expected to spend, says Michael Banks, its chief financial officer.


Over the last few years, though, its charity care and bad debts costs have fluctuated up and down with no discernible pattern, he says. The hospital last year spent a little over $6.2 million on charity care and recorded $4.8 million in bad debt, which compared with charity-care costs of just under $6.2 million and bad debt of $5.4 million in 2001, he says.


The thing that will lead to more bad debts and charity care is people being eliminated from insurance programs altogether, Banks says.


Deaconess reported combined charity care and bad debt costs of about $6.8 million last year, which were up from about $6.3 million in 2001, and $5.6 million in 2000, but slightly less than 1998s costs in those areas.


Meanwhile, Valley Hospitals combined charity care and bad debt costs fell slightly last year, to about $2.5 million from $2.6 million in 2001. Based on first-quarter data, Empire Health Services is projecting that Deaconess combined charity care and bad-debt costs will shrink this year, to around $4.8 million, while Valley Hospitals will rise, to about $3.1 million.


Holy Family Hospital had combined charity care and bad-debt costs of about $5.8 million last year, up from about $4.7 million in 2001, says Kevin Walstrom, the North Side hospitals chief financial officer. He says first quarter figures suggest the hospitals charity-care costs this year will about $2.6 million, up from $2.3 million last year, and the hospital has budgeted about $4 million for bad debt, after incurring $3.5 million in bad debt last year.


Based on those figures, I think the trend would obviously indicate that there are economic issues at play, he says.


Theres recently been some Medicare cuts. We feel those will definitely have a negative effect on us, in addition to whatever health-care funding cuts the state Legislature might make, Walstrom says.


Providing care to the needy is part of the mission of Holy Family and its parent, Providence Services Eastern Washington, he notes, adding bluntly, Thats why were here. Still, he says, Over time, if that trend (of reduced funding levels) continues, it obviously will be a financial challenge for the facility.