All-Payer Rate-Setting and the Provision of Hospital Care to the Uninsured: The New Jersey Experience

Abstract

The New Jersey all-payer prospective payment system compensates hospitals for charity care and bad debts. This study examines its impact on the provision of care to self-pay patients. Self-pay patients include two types of uninsured individuals: (1) patients who cannot afford to pay their bill and (2) more affluent patients who can afford to pay but who evade collection. Using data for the period 1979-85, the study employed a sample of seventy-nine New Jersey hospitals that entered the all-payer system during the years 1980-82. A regression equation, which included independent variables to control for the community's pool of uninsured residents and the hospital's share of this pool, was estimated for the number of self-pay discharges. The results indicate that the volume of care provided to self-pay patients increased when the New Jersey all-payer system was introduced. The results also show that teaching hospitals and facilities in urban areas discharge a disproportionately large number of self-pay patients. Analysis of the operating margin ratio suggests that the all-payer system helped to restore the financial viability of hospitals that tend to provide larger amounts of services to the uninsured.