HCM 320 Module 4 Project One Example

Project One: The Economics of Valley's Sliding Fee Scale

[Student Name]

Southern New Hampshire University

HCM 320: Healthcare Economics

Project One

[Instructor Name]

[Date]

The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.

Project One: The Economics of Valley's Sliding Fee Scale

Federally qualified health centers must offer discounts to patients with low incomes. At Valley Community Health Center, about 5,200 of 22,000 patients are uninsured, and most pay on the sliding fee scale. The scale is usually discussed as a mission requirement. This project looks at it as an economic policy: what prices it sets, how people respond, what it costs and whether it could work better.

How the Scale Works

Patients with household incomes at or below the federal poverty level pay a nominal fee of $20 per visit. The fee rises through three bands between 100% and 200% of poverty and reaches the full charge, which averages $145, above 200%. Patients must document income each year. The average cost of delivering a visit is about $185, so every uninsured visit is subsidized, mainly by federal health center grants.

Table 1. Valley's Sliding Fee Scale and Uninsured Visits

Note. Composite data; average cost per visit about $185.

Price Discrimination by Ability to Pay

Charging different prices to different buyers for the same service is called price discrimination. Businesses often use it to capture more revenue from customers willing to pay more. The sliding scale uses it for the opposite purpose: to lower the price for people with less ability to pay, so that price does not keep them from care. Because demand for care is more price-sensitive among low-income patients, lower prices for them expand access where it matters most.

Why Access Matters Economically

Hadley (2003) reviewed decades of research and concluded that uninsured people receive less preventive and primary care, are diagnosed later and have worse health outcomes, with consequences for their work and income. Sommers et al. (2017), summarizing more recent evidence, found that gaining coverage increases access to care, improves financial security and is associated with better self-reported health and lower mortality. For uninsured patients, the sliding scale partly substitutes for coverage by keeping the price of primary care low.

Notches at the Band Edges

Stepped bands create notches, points where a small increase in income produces a large jump in price. A family at 100% of poverty pays $20 per visit; a family earning a few dollars more pays $35, a 75% increase. A patient with diabetes who visits eight times a year would pay $120 more annually after a raise of perhaps $200. Economists worry that notches discourage people from reporting income increases and create unfairness between families with nearly identical incomes.

Visible Effects at Valley

Front-desk staff report that patients near band edges sometimes delay recertifying income or ask whether a small raise will change their fee. Visits per patient drop by about 12% between the lowest band and the next, a pattern consistent with price sensitivity at the notch, although other differences between the groups could contribute.

The Cost of Verifying Income

Verification has costs. Staff spend an average of fourteen minutes per patient reviewing pay stubs and tax documents, about 1,200 staff hours a year, or roughly $26,000 in wages. Patients bear costs too, gathering documents and sometimes returning with them, which can delay care. Some patients who qualify for the lowest band are charged the full fee because they lack documentation on their first visit.

Revenue and Subsidy

Uninsured visits generated about $550,000 in fee revenue last year against a delivery cost of about $3.3 million, leaving about $2.75 million covered by grants and other revenue. Changes to the scale should be judged by their effect on access and on this subsidy.

Who Benefits and Who Pays

The scale's benefits flow mainly to patients below 133% of poverty, who make about 85% of uninsured visits and pay less than a fifth of the cost. Its costs are borne by federal taxpayers through health center grants, by the center's other payers through cross-subsidy and, indirectly, by patients whose fees rise at band edges. From an equity standpoint, the scale is strongly progressive: the lower a patient's income, the larger the share of cost covered by others. The design question is not whether to subsidize but how to do it with fewer distortions and less administrative friction.

A Smoother Scale

Replacing the four discount bands with smaller steps, for example $5 increases for every ten percentage points of poverty, would shrink the notches. A family crossing 100% of poverty would move from $20 to $25 rather than to $35. Modeling suggests the change would reduce fee revenue by about $18,000 a year while reducing the drop in visits at the first band edge.

Pairing the Scale With Coverage

About 40% of Valley's uninsured patients appear eligible for Medicaid or subsidized marketplace coverage but are not enrolled. Enrolling them would bring in far more revenue per visit than any fee change. According to Nocon et al. (2016), Medicaid enrollees whose usual source of care was a health center cost the system less overall than comparable enrollees, suggesting coverage paired with health center care is good value for the system as well as patients.

Simplifying Verification

The center could accept self-attestation of income for the first visit with documentation within sixty days, use a single annual recertification timed to tax season and allow electronic document upload. These changes would reduce staff time and patients' burden while maintaining program integrity.

Recommendations

Valley should smooth its fee scale into smaller steps, simplify income verification, assign a certified enrollment counselor to screen every uninsured patient for coverage and track visits per patient by band to monitor price effects.

Conclusion

Seen through economics, the sliding fee scale is price discrimination in the service of access. It works, but its stepped design creates notches and its verification process adds costs for staff and patients. A smoother scale, simpler verification and active coverage enrollment would make it fairer and more efficient. The changes can begin within one budget cycle.

References

Hadley, J. (2003). Sicker and poorer: The consequences of being uninsured. A review of the research on the relationship between health insurance, medical care use, health, work, and income. Medical Care Research and Review, 60(2 Suppl.), 3S-75S. https://doi.org/10.1177/1077558703254101

Nocon, R. S., Lee, S. M., Sharma, R., Ngo-Metzger, Q., Mukamel, D. B., Gao, Y., White, L. M., Shi, L., Chin, M. H., Laiteerapong, N., & Huang, E. S. (2016). Health care use and spending for Medicaid enrollees in federally qualified health centers versus other primary care settings. American Journal of Public Health, 106(11), 1981-1989. https://doi.org/10.2105/AJPH.2016.303341

Sommers, B. D., Gawande, A. A., & Baicker, K. (2017). Health insurance coverage and health: What the recent evidence tells us. New England Journal of Medicine, 377(6), 586-593. https://doi.org/10.1056/NEJMsb1706645