Altruism or moral hazard: The impact of hospital uncompensated care pools

Empirical evidence from New Jersey supports theories of hospital altruism. From 1987 to 1992, New Jersey reimbursed hospitals for uncompensated care through the Uncompensated Care Trust Fund. The Trust Fund reduced the shadow price of charity care, inducing hospitals to increase their provision of uncompensated care. Hospitals increased inpatient uncompensated care by an average of 14.8% and statewide uncompensated care increased by $360 million during 1987-1990. Empirical evidence suggests that the state effectively addressed the moral hazard problem created by the Trust Fund by auditing uncompensated care and regulating hospital collection procedures.