GAO Government Accountability Office New Mexico Office of the State Auditor November 2016 Transparency Report Indigent Health Care at University of New Mexico Hospital Indigent Care Costs Decreased but Shortfall Remains State and local governments provide several sources of funding to hospitals in order to support health care for economically disadvantaged people. Understanding the impact of these funds in the already complex landscape of health care costs and payments has proved challenging for policy makers and the public. The Office of the State Auditor (OSA) received several inquiries seeking additional transparency in this area. The University of New Mexico Hospital and its affiliates (collectively, UNMH) agreed to participate in a special audit of revenues and expenses related to indigent health care (the “Special Audit”). The Special Audit found that UNMH’s costs of indigent care have decreased by over 50% between Fiscal Year 2014 and Fiscal Year 2016. Due to Medicaid expansion and the Affordable Care Act, the resulting shortfall, meaning the amount of uncompensated indigent care that UNMH provides, decreased steadily even though UNMH served 34% more indigent patients. However, a $60 million shortfall still remains. The Bernalillo County and Sandoval County mill levies are not designated or restricted for indigent health care. Instead, that money is directed more generally toward operating a hospital for the general public, which includes the only Level 1 Trauma Center and the only teaching hospital in the state. In Fiscal Year 2016, the Bernalillo County mill levy generated $95,849,349 for the benefit of UNMH, and the portion of the Sandoval County mill levy for the benefit of Sandoval Regional Medical Center generated $6,152,531. Health Care Finance in a nutshell Hospital costs are the direct costs (like nurses’ salaries, supplies) and indirect costs (like the salaries of accounting staff) that a hospital incurs to provide care to a patient. Hospital charges are like a “list price” for medical services. However, charges are not identical to the prices that most patients pay. Instead, most patients pay a negotiated rate, which commercial insurers, Medicaid and Medicare have negotiated with healthcare providers on behalf of their members. Because the charges are specific to services while the costs are generalized for the whole enterprise, hospitals generate a cost-tocharge ratio by dividing total hospital charges by total hospital costs. To calculate the cost of services to indigent patients, the Special Audit multiplied the charges for those patients by the cost-tocharge ratio. Indigent Care Costs, Funding and Net Shortfalls in Funding, FY 2014-2016 $150,000,000 $100,000,000 $50,000,000 $- $(50,000,000) $(100,000,000) $(150,000,000) $132,411,661 $82,018,593 $64,678,251 $4,778,931 $7,199,215 $4,392,556 $(74,819,378) $(60,285,695) $(127,632,730) Total Funding for Indigent Care Total Cost of Providing Indigent Care Excess (Shortfall) of Funding for Indigent Care to Cost of Providing Indigent Care “Financial reporting plays a major role in fulfilling government’s duty to be publicly accountable in a democratic society.” – Governmental Accounting Standards Board, Concept Statement No. 1.