Financial Pressures on Safety Net Hospitals

Although the intentions of the Patient Protection and Affordable Care Act (PPACA) are to reform and improve health care in the U.S., it could worsen the state of many safety-net hospitals and increase closures, according to a new report.

Consulting firm Alvarez & Marsal released a new report, “Safety Net Hospitals at Risk: Re-thinking the Business Model,” which discusses how the PPACA could actually worsen the status of many safety-net hospitals.

According to Guy Sansone, managing director and head of A&M’s Healthcare Industry Group, while PPACA increases health insurance coverage, it doesn’t help reduce costs as the industry faces on an aging population.

“A&M believes a new business model leading to the development of integrated delivery systems, or hospital ventures with ‘super-urban’ Federally Qualified Healthcare Centers offers the best opportunity for sustainable cost-effective, quality-oriented care for those using the safety net,” Sansone wrote in the report.

The Center for Disease Control and Prevention defined safety-net hospitals as having Medicaid or uninsured patients accounting for 30% or more of Emergency Department visits. With the implementation of PPACA and greater access to insurance benefits, safety-net hospitals will have to compete for the patient population that they traditionally served.

In states participating in the Medicaid expansion, there is forecasted to be a 40% to 45% reduction in the number of uninsured. According to the report, “small, rural safety-net hospitals with less than 100 beds are negatively impacted by low occupancy rates in the range of 34% to 53%.”

In addition to the potential decrease in volume, safety-net hospitals are facing other factors that will worsen their financial conditions:

• A 45% reduction in Medicaid Disproportionate Share Hospital payments from $9.9 billion in 2014 to $5.4 billion in 2019.

• A 35% to 50% reduction in the annual Medicare market basket update through 2019.

• Increased penalties associated with Medicare value purchasing initiatives targeting hospital admissions, hospital acquired conditions and patient satisfaction

“Safety net hospitals are in the crosshairs of economic distress and healthcare reform,” according to the report. “They have historically been challenged by high levels of uncompensated care, a Medicaid payor mix and minimal commercial pay cost shifting. Growing fiscal constraints, combined with the unintended consequences of the PPACA requires a new business model to ensure sustainability.”

There are a handful of incremental changes, but the two big solutions A&M propose are to create integrated delivery systems and to create “super urban” Federally Qualified Health Systems (FQHCs). According to A&M, safety-net hospitals that align with a “Super Urban” FQHC would mean better servicing the primary care and urgent care needs of the local population, which would relieve crowding in the Emergency Department.

Read the full report here. (PDF)