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Hospitals Serving Black Patients Are Paid Less

October 5, 2022

Summary: A commentary by researchers highlights inequalities in the financing of hospitals: those serving mainly Black patients have substantially lower capital investment and payment levels. This is structural racism, reflecting a long history of discriminatory programs and policies.

Hospital financing in black and white
September 20, 2022
By Gracie Himmelstein, Joniqua Ceasar, & Kathryn E.W. Himmelstein

During our training as doctors, we have rotated through safety-net hospitals, elite academic medical centers, and private clinics. The resources for patient care and comfort were sumptuous in some facilities, spartan in others. The differences were often night and day or, as we quantified in a later analysis, black and white: we cared for far more white patients at highly resourced facilities and many more Black patients and other patients of color at those with fewer resources.

While the 1964 Civil Rights Act forbade hospitals from discriminating based on race, segregation persists. According to Medicare data we analyzed, a relative handful of hospitals — just 10% of all hospitals — provide three-quarters of all care for Black people covered by Medicare.

We found that in hospital care, as in public education, separate usually means unequal. The hospitals in which Black people account for a large share of inpatients have relatively meager facilities — as measured by the dollar value of the buildings and equipment — and are much less likely than other hospitals to offer expensive, high-tech, and often life-saving services like cardiac catheterization labs, or even routine ones like cardiac rehab programs. The term “structural racism” seems particularly apt for these systematic inequalities in hospitals’ bricks, mortar, and equipment.

Race-based inequities in hospital resources are the legacy of slavery, discrimination, and health care financing policies that directed resources to white communities and away from communities of color. The current-day hospital payment system continues to cement these inequities by assigning different dollar values to the care of different patients: lower values for care delivered to people who are uninsured or covered by Medicaid, and higher values to care for the privately insured and patients with Medicare — especially those able to pay deductibles, copayments, and coinsurance.

Black people are more likely to be consigned to the lower-value group. Far more Black people are uninsured or rely on Medicaid than white people, and Black workers are less likely than white workers to have job-based private insurance. Fewer privately insured Black families have the financial assets needed to cover the often substantial out-of-pocket costs of an insured hospital stay. This payment structure incentivizes hospital leaders to favor services and outreach efforts that attract lucrative — and predominantly white — patients.

… Hospitals caring for large shares of Black patients were paid $283 less for each day of a patient’s hospital stay compared to other hospitals. As a result, while many hospitals realized profits from their inpatient care, Black-serving facilities ran in the red…

Equalizing funding would have required $14 billion in additional payments to Black-serving hospitals in 2018 (the most recent year for which data were available), or about $25 million per Black-serving hospital. …

That the U.S. hospital payment system values different patients differently — and hence penalizes Black-serving hospitals — is a policy choice, and an unusual one among wealthy nations. In most other wealthy nations, even those like Germany with hundreds of different insurance plans, a single fee schedule applies to all patients. In the U.S., the second-class status of those covered by Medicaid was baked in at the outset when, in the midst of the Civil Rights era, Congress chose to separate coverage for the poor (many of whom were Black) from that of the elderly (most of whom were white). Medicare offered seniors a federal plan modeled on Blue Cross coverage, while Medicaid, passed simultaneously, relegated the poor to a welfare-based program largely controlled, even today, by state governments, some of them explicitly racist.

That the current hospital financing system assigns a lower dollar value to the care and lives of Black patients is a largely hidden but pernicious form of structural racism. Health reforms should equalize payments among patients and hospitals, and repair the damage of past policies by directing investments to resource-starved facilities that have long served Black communities.

Comment by: Jim Kahn

This important commentary by health services researchers highlights how hospitals that serve predominantly Black populations are financially compromised. They have 40% lower investment in facilities and receive 22% lower payments for services than hospitals which serve mainly White populations. This is the inequitable effect of a health care financing mix that systematically underpays for Black patient populations, who are more likely to be covered by Medicaid or uninsured.

For those interested in more technical detail, see the two academic articles: capital assets of $5,197/patient-day at black-serving hospitals, $5,763 at Hispanic-serving hospitals, and $8,325 at other hospitals and mean revenues were $283 lower/patient day and mean profits were $111/patient day lower at Black-serving hospitals.

The authors point out that in Germany, with its many private insurers, a single fee schedule applies to all patients, preventing these kinds of inequities. Other strengths of the German system: the insurers sell a standardized broad benefit plan, with no profit (they can profit from a small market in voluntary supplemental insurance).

In the US, this kind of parity and simplicity would be most easily achieved with a single payer system. Health insurers here would never accept the not-for-profit and one-product constraints applied in Germany.

A final note: It’s wonderful to see this important work from two offspring of legendary single payer advocates and researchers (and HJM bloggers) David Himmelstein and Steffie Woolhandler.

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