Assessment of Underpayment for Inpatient Care at Children’s Hospitals

Hospitals’ financial viability depends on adequate reimbursement of care. This dependency is particularly true for children’s hospitals, the medical safety net for children who are underserved and/or have medically complex conditions.¹ Reimbursement varies considerably across payers for adult patients; public programs (eg, Medicaid) tend to reimburse less than private insurers.² However, little is known about reimbursement of inpatient care for pediatric patients. The objectives of this cross-sectional study were to (1) compare cost and payer reimbursement for hospital admissions of children and (2) assess associations of underpayment by patients’ demographic and clinical characteristics.

We conducted a retrospective cohort analysis of 216 935 admissions for any reason among children aged 0 to 18 years from January 1 through December 31, 2018, to 15 tertiary children’s hospitals contributing data to the Revenue Management Program and Pediatric Health Information System at the Children’s Hospital Association in Lenexa, Kansas. The main outcome measure, underpayment, occurred when cost exceeded actual reimbursement for an encounter. Cost was estimated from 29 hospital and cost center–specific (eg, operating room) cost-to-charge ratios (CCRs)³ from the Centers for Medicare & Medicaid Services, with professional fees excluded. Disproportionate share hospital payments were added to the direct reimbursement for Medicaid admissions. This study was deemed exempt from human subjects review by the institutional review board at Boston’s Children’s Hospital with a waiver of informed consent owing to use of retrospective, deidentified data.

We assessed clinical factors (length of stay [LOS], presence of complex chronic condition,⁴ use of intensive care, receipt of surgery) related to underpayment for each hospitalization—stratified by payer (public and private)—and adjusted for demographics (age, sex, race) using generalized linear mixed-effect models, clustering on hospital. Analyses were performed using SAS, version 9.4 (SAS Institute), and all analyses were 2-sided with P < .05 considered statistically significant.

Of the 216 935 admissions analyzed, 35.6% resulted in underpayment. Underpayment was more prevalent with public vs private payers (51.2% vs 17.9%; P < .001; Figure). Public payers covered 53.2% of all admissions. Female and male patients each accounted for 50.0% of admissions.

Longer LOS was associated with a higher likelihood of underpayment for admissions reimbursed by public payers (odds ratio [OR], 11.34 [95% CI, 10.75-11.96] for LOS ≥8 days vs 1 day; P < .001). With private payers, longer LOS had a significant but smaller association with likelihood of underpayment (OR, 1.63 [95% CI, 1.53-1.74] for ≥8 days vs 1 day; P < .001; Figure).

Admissions for children with complex chronic conditions were less likely to be underpaid, regardless of payer (public: OR, 0.77 [95% CI, 0.74-0.79]; P < .001; private: OR, 0.82 [95% CI, 0.79-0.86]; P < .001). Admissions with use of intensive care were more likely to be underpaid by public payers (OR, 1.06 [95% CI, 1.02-1.10]; P = .004) and less likely to be underpaid by private payers (OR, 0.89 [95% CI, 0.84-0.93]; P < .001).

A high percentage of admissions to children’s hospitals resulted in underpayment. Despite supplemental payments, public payers underpaid admissions nearly 3 times more frequently than private payers. Further investigation is needed to assess whether increased payment from private payers offset the underpayment from public payers.⁵ Admissions covered by a public payer with a prolonged LOS were particularly associated with a high likelihood of underpayment. Fixed payments based on diagnosis-related groups, as well as reinsurance (eg, stop-loss) may have contributed to this finding.

Limitations of the current study include lack of available data for the type of Medicaid plan (fee for service vs managed care). Clinical data (eg, review of medical records) are preferable to administrative data when measuring medical complexity. Imprecision exists in conversion of hospital charges to costs.

The results of this cross-sectional study align with previous research assessing Medicaid underpayment.¹ Payment rates to hospitals from Medicaid, with the exception of managed-care plans, are set annually by state law within federal guidelines. The US federal government typically pays approximately 60% of total Medicaid costs through the federal medical-assistance percentage, and states pay the remainder.⁶ Budgetary constraints may restrict states’ ability to adjust Medicaid payments and help balance cost and reimbursement for inpatient care in children’s hospitals.

Accepted for Publication: March 30, 2021.

Published Online: May 28, 2021. doi:10.1001/jamapediatrics.2021.1133

Corresponding Author: Paige VonAchen, MD, Department of Medicine, Boston Children’s Hospital, 300 Longwood Ave, Boston, MA 02115 (paige.vonachen@childrens.harvard.edu).

Author Contributions: Dr Hall had full access to all of the data in the study and takes responsibility for the integrity of the data and the accuracy of the data analysis. Dr VonAchen and Ms Gaur contributed equally as co–first authors.

Concept and design: Gaur, Wickremasinghe, Hall, Goodman, Agrawal, Berry.

Acquisition, analysis, or interpretation of data: VonAchen, Gaur, Wickremasinghe, Hall, Goodman, Berry.

Drafting of the manuscript: VonAchen, Gaur, Berry.

Critical revision of the manuscript for important intellectual content: All authors.

Statistical analysis: Hall.

Administrative, technical, or material support: VonAchen, Gaur, Wickremasinghe.

Supervision: Goodman, Agrawal, Berry.

Conflict of Interest Disclosures: Dr Goodman reports receiving personal fees from Elsevier and McGraw Hill outside of the submitted work. No other disclosures were reported.

Disclaimer: The views and opinions in this article reflect those of the authors and not necessarily the organizations that they represent.