Charity care in New Jersey hospitals: Health policy issues in the development of a proposed method for allocating subsidy money

New Jersey statute established the Charity Care Subsidy Fund to reimburse hospitals in the State for free care delivered to qualified uninsured individuals. Hospitals have alleged that many patients who would qualify for charity care, cannot or do not document their eligibility for the Program. Further, the current data on charity care used by health policy makers to distribute the subsidy money do not necessarily represent how much free care hospitals are actually providing to the poor, and may not result in adequate reimbursement to many facilities. This study proposes an alternative method of calculating hospitals\u27 needs for charity care subsidy money based on the financial characteristics of the population they serve. This study developed two indicators, which represent the level of poverty among the uninsured people each hospital serves and estimates the costs each hospital would incur in providing care to these individuals. The Study Allocation Variable estimated the total cost of services provided by the hospitals to patients who would qualify for charity care to be approximately $560 million. Analyses using statistical methods (correlation, and regression) were completed to determine how the proposed methodology compares to the previous allocation variables used by the State for the past several years and other variables. The results of these analyses give insight into how the allocation variables were constructed by the Legislature and the underlying philosophy of each one. The inpatient indicator seemed to provide an accurate estimate of hospitals\u27 costs. Problems with the outpatient indicator were encountered, which may have been due to several possible inadequacies in the data used to create this indicator. Overall, the results of the statistical analyses were congruent with the philosophy behind the construction of each allocation variable. The results of this study concern three major themes in health policy: quality and availability of data in health policy; the patient\u27s role and responsibilities in gaining access to health care; and, differing philosophies regarding who is responsible for caring for the poor