Facing a 93 percent increase in free health care costs to people who cannot afford insurance, the University of Michigan Health System is being forced to take another look at the way they do business, according to hospital officials.

The health system — which provides care to more than 300,000 patients per year — spent $170 million of uncompensated care in fiscal year 2008 — almost double the $88 million it spent in fiscal year 2006.

While the national economy has only experienced a downward trend since last fall, Michigan’s economy has been suffering for years, weighed down by the fledgling auto industry and the nation’s worst unemployment rate — now more than 11 percent according to U.S. Department of Labor.

As the state’s economy worsens, the combination of benefit cuts and layoffs has left many Michigan residents on the perilous plateau of being too young to qualify for Medicare and too wealthy to qualify for Medicaid.

In the wake of this boom in charity care, hospitals are re-examining the ways in which they can continue to care for patients in emergency situations, regardless of the patient’s insurance status, which they are required to do per a 1986 federal law.

Helen Levy, research assistant professor at the University's Institute for Social Research, said the state’s compounding unemployment problems have put a significant strain on Michigan’s hospitals.

“Because of the recession, fewer people can pay for health care services that they need, so hospitals will have to provide more uncompensated care,” Levy said.

According to the Center for Healthcare Research & Transformation, from 2006 to 2007, the number of Michigan residents who didn’t have health insurance increased from 10.5 percent to 11.6 percent of Michigan's total population.

The increase in uninsured residents has forced the University health system to reorganize their priorities, said Shantell Kirkendoll, senior public relations representative for University Hospital.

“We are absorbing the cost of charity care and bad debt as part of our overall budget planning,” Kirkendoll said.

In addition to the $170 million of uncompensated direct patient care, Doug Strong, director and chief executive officer of the University Health System, reported at February’s Board of Regents meeting that through community health programs and services and research costs in excess of funding, UMHS contributed a total community benefit of $323 million in the 2008 fiscal year.

“It is increasingly difficult in this economic environment to provide the level of benefit to the community that it needs,” Strong said at the February regents meeting. “Amidst all of our other demands, we have significantly expanded our commitment to community benefit in recent years.”

In response rising costs at University Hospital, officials have had to implement a hiring freeze, mainly in administrative areas, and reduce overtime and temporary positions.

Despite recent challenges, Levy said that she expects the federal government to resume a greater responsibility for health care under the Obama administration.

“I certainly think that the financial troubles facing hospitals as a result of what is essentially an unfunded mandate that they provide care for the uninsured will lend impetus to President Obama’s efforts to expand insurance coverage, since that is another way to reduce the burden on hospitals of uncompensated care,” Levy said.

Usually, hospitals receive two forms of compensation for providing charity care.

The first is through tax breaks. Not-for-profit hospitals, of which most hospitals are, pay lower taxes.

The other method, known as disproportionate share payments, provides higher Medicare reimbursements to hospitals that provide uncompensated care.

However, there is a gap between treatment costs and the amount with which these programs reimburse the hospital. The hospital is forced to absorb the difference, usually at a loss.

Adding to the problem, government health care programs are expanding and not equally compensating hospitals for their coverage, putting further strain on hospital expenses.