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Safety Net Hospitals

Safety Net Hospitals

Individuals receive care regardless of their ability to pay under the United States’ safety net. Because the safety net is funded by a variety of sources, including local, state, and federal funds, state and federal policies may have an impact on uncompensated care funding and the safety net’s ability to serve vulnerable populations.

The recent closure of a Los Angeles safety net hospital, as well as the current financial crisis at an Atlanta safety net hospital, exemplify the challenges affecting the health care safety net’s ability to care for the nation’s most vulnerable populations. The health care safety net is made up of providers, hospitals, and community health centers (CHCs) that, by mission or federal mandate, provide care to individuals who are unable to pay for medical care, most of whom are uninsured, underinsured, or Medicaid beneficiaries. 1 CHCs provide primary care, whereas safety net hospitals provide inpatient or emergency indigent care, as well as trauma or ambulance services that benefit the entire community. 2 As state and federal policymakers seek to contain health-care costs and expand coverage, funds are frequently reallocated away from the safety net. Thus, recent proposals to cut Medicaid funding, workforce shortages, and state initiatives to expand coverage may unintentionally jeopardize the safety net’s viability and ability to provide care.

CHCs face workforce shortages as well as care coordination issues.

Federally qualified CHCs are required to provide certain primary care services to all patients, regardless of their ability to pay. Since 2002, the Bush administration has invested more than $645 million in CHCs, providing 4.5 million people with access to primary care. 3 Despite the fact that increased funding has increased the number of CHC sites and patients, CHC administrators report that it is difficult to recruit physicians to work in CHCs and that a large portion of the allocated funds is used to recruit and compensate medical professionals. 4 Furthermore, despite the fact that CHCs provide primary care, their patients, particularly uninsured and Medicaid patients, frequently do not receive necessary follow-up, diagnostic, specialty, or ancillary care, particularly for mental health and substance abuse services, due to financial constraints. 5 As a result, patients with urgent or emergent needs are frequently forced to seek care at safety net hospitals. Some safety net hospitals have also established CHCs on their campuses to provide outpatient services in order to improve access to primary care. 6

Reduced funding and competition endanger safety net hospitals.

Inadequate funding and an inability to compete for private pay patients in their primary service areas are also threats to safety net hospitals. Safety net hospitals can be public or private non-profits, but their mission is to provide medical services to people regardless of their ability to pay. 7 HCFO grantees studied the effects of the 1997 Balanced Budget Act (BBA) and market factors on the health care safety net, including Gloria J. Bazzoli, Ph.D., of Virginia Commonwealth University, Richard C. Lindrooth, Ph.D., of the Medical University of South Carolina, and Romana Hasnain-Wynia, Ph.D., originally at the American Hospital Association’s Health Research and Educational Trust and now at Northwestern University. They investigated the effect of the BBA’s provisions designed to slow the growth of Medicare payments and the formation of hospital networks on hospitals, the structure of the safety net, and the quality of care provided by safety net hospitals in particular. Bazzoli and colleagues discovered that hospitals facing financial difficulties as a result of the BBA provided less uncompensated care. Furthermore, non-core safety net hospitals provided less uncompensated care, and safety net hospitals provided more uncompensated care.
Safety Net Hospitals
According to the National Association of Public Hospitals and Health Systems (NAPH), uncompensated care accounted for 21% of total costs for its members in 2004, compared to 5.5 percent for all hospitals.

Furthermore, one-half of NAPH members reported negative operating margins.

9 While hospital administrators frequently attempt to subsidize uncompensated care through payments from privately insured patients, private payers account for only about 20% of their revenue. 10 Because they lack the resources to make capital investments or market hospital services, some safety net hospital administrators are unable to compete with nearby hospitals for privately insured patients.11

Federal cuts and state expansion efforts may have an impact on the viability of the safety net, either positively or negatively.

State and local governments, Medicaid, Medicare, indirect medical education (IME) payments, and disproportionate share hospital (DSH) payments are all sources of funding for uncompensated care at safety net hospitals.

12 Because both CHCs and safety net hospitals rely heavily on Medicaid for revenue, state and federal legislation can have an impact on the providers’ financial viability.

13 The Centers for Medicare and Medicaid Services (CMS) recently proposed cutting Medicaid spending by $11 billion over the next five years. 14 The rules would eliminate federal matches for graduate medical education (GME) and limit federal Medicaid matching funds received by government-owned hospitals to the true cost of the medical service in an effort to reduce unnecessary costs. 15 Critics argue that such cuts would put additional strain on the safety net, reduce access to care for the poor, and jeopardize physician GME. 16

Furthermore, state efforts to expand coverage through existing public programs, such as Medicaid and SCHIP, may detract from safety net funding (as some states redirect Medicaid funds to coverage initiatives) or relieve pressure on the safety net by reducing the number of uninsured requiring safety net services. It remains to be seen which impact is more likely. Some efforts to expand coverage, for example, are aimed at specific populations, such as children and women, and may exclude people who rely on safety net services for care. Anthony T. Lo Sasso, formerly of Northwestern University and now at the University of Illinois at Chicago, investigated whether the safety net “crowded out” (replaced) either public or private insurance for children under the age of 14 and childless adults aged 18 to 64. He discovered that there was little crowding out of children, which was most likely due to SCHIP and Medicaid, and that there was some crowding out of childless adults for CHC services, but less so for safety net hospital services. (To view the full research findings, go to…).

The growing number of uninsured people will almost certainly increase demand for safety net services.

As more people are unable to afford private insurance and federal policymakers limit eligibility and funding for public insurance, the number of uninsured is expected to rise.

17 As a result, the demand for safety net services such as prescription drugs, mental health, dental care, and specialty services is expected to rise. 18 Without the ability to deal with financial and workforce constraints, the safety net may be unable to serve a growing proportion of the US population. According to Marion E. Lewin and Raymond J. Baxter, “Health-care reform and insurance expansion are once again top priorities for both states and the federal government. As part of that admirable goal, states and communities must consider how to ensure that the poorest and most vulnerable citizens are not left worse off as a result of these changes.” 19

The following grants from the HCFO portfolio may help policymakers understand how community and policy factors influence the safety net. Other grants for health care costs can be found at

The Impact of Pay for Performance on Minority and Poor Hospitals Institution: Harvard University School of Public Health Principal Investigator: Ashish Jha, M.D., M.P.H.
From February 2008 to July 2008

The researchers will investigate the impact of financial incentives for quality improvement on hospitals that serve minority or other underserved populations. The Centers for Medicare and Medicaid Services have conducted pay-for-performance (P4P) demonstrations and are considering national implementation. However, the impact of P4P has not been extensively studied. Hospitals that serve underserved populations may have a higher potential for quality improvement; however, these facilities lack the tools and resources necessary to improve quality and compete for additional resources. The researchers will compare quality changes in hospitals in the Medicare Premier P4P Demonstration that serve disadvantaged populations (minority and poor) to changes in hospitals in the demonstration that do not serve disadvantaged populations and hospitals that serve disadvantaged populations but are not in the demonstration (and not subject to P4P). The project’s goal is to provide more information about the impact of P4P on hospitals that serve disadvantaged populations and to assist policymakers in designing incentive systems that encourage higher quality care without disproportionately harming these hospitals.

Title: The Effects of the Balanced Budget Act and Market Forces on the Health Safety Net, Virginia Commonwealth University Principal Investigator: Gloria J. Bazzoli, Ph.D.
From September 2001 to August 2004,

The project examined the effects of the 1997 Balanced Budget Act (BBA) and other important market factors on the hospital safety net in the United States. The researchers looked specifically at the local structure of the hospital safety net by examining hospitals’ changing roles and involvement in safety net care, the operation of safety net hospitals by studying staffing intensity, and the outcomes of care for indigent patients as measured by selected quality of care indicators. The following discussion summarizes policy-relevant findings in each of these areas.

The Hospital Safety Net’s Structure

The findings show that certain hospitals reduced their involvement in indigent care during the late 1990s and will most likely continue to do so in the future. The researchers discovered that uncompensated care was declining in hospitals that were not considered core safety net institutions by the market. Although these hospitals are not part of the core, their contributions add up, and their cuts have a significant impact on core safety net institutions. They also discovered that non-safety net hospitals were reducing public health and specialty services commonly used by uninsured and poor patients, which could indicate that these hospitals intend to reduce their future involvement in charity care. Finally, they discovered that voluntary safety net hospitals that experienced greater fiscal pressures from Medicare BBA experienced particularly sharp declines in uncompensated care provision, and that this effect varied depending on hospital market conditions. Overall, the study’s findings, along with those of other recent studies, suggest that the hospital safety net remains intact but is becoming increasingly strained as indigent care becomes concentrated in a small set of core facilities. The policy implications of this analysis are that continued public support for hospitals that demonstrate a commitment to indigent care provision, as well as continued scrutiny of not-for-profit hospital participation in local health safety nets, is justified.

Safety Net Hospitals in Action

According to the researchers’ analysis, non-safety net hospitals that were most vulnerable to the provisions of the BBA experienced a decline in staffing ratios at roughly twice the rate of non-safety net hospitals that were least vulnerable to the BBA. The BBA had no effect on staffing at safety net hospitals, according to the researchers. As a result, the BBA may have exacerbated the nursing shortage at non-safety net hospitals that rely heavily on Medicare patients, because the financial effects of the BBA resulted in lower wages, which affects the supply of nurses. Safety net hospitals did not respond to the BBA provisions by reducing staffing, which is likely due to the fact that approximately one-third of safety net hospitals are public.

Quality of Care in Public Hospitals

A final area of investigation concerns changing hospital quality of care for patients of both safety net and non-safety net hospitals. According to preliminary findings, core safety net hospitals had lower quality than non-safety net hospitals. They discovered no evidence that hospitals under greater financial pressure from Medicare had lower quality before or after BBA implementation. They also found no evidence that the relative quality of care at core safety net hospitals versus non-safety net hospitals changed following BBA. These findings imply that BBA had no negative impact on the quality of care at safety net hospitals or hospitals most vulnerable to BBA financial pressure. However, the lower quality observed in core safety net hospitals may necessitate additional research and potential intervention to ensure that the population served by these hospitals receives high-quality care.

Title: The Safety Net and Employer-Provided Health Insurance Author: Anthony T. LoSasso, Ph.D. Institution: Northwestern University Principal Investigator: Anthony T. LoSasso, Ph.D.
From October 2001 to March 2004,

There is a substantial body of literature on the extent to which public health insurance coverage via Medicaid induces less private health insurance coverage. However, little is known about how other components of the health-care safety net affect private coverage. The researchers wanted to look into the impact of the health-care safety net on children’s health insurance coverage. They conducted an individual-level analysis of health insurance coverage using data from the Current Population Survey from 1990 to 2000, as well as a large panel of state-level data on hospital uncompensated care and free and reduced-cost care provided by Federally Qualified Health Centers (FQHCs). For the analyses, they focused on two distinct groups: children aged 14 and under and single, childless adults aged 18 to 64.

Because measures of the safety net are likely to be confounded with insurance coverage, the researchers estimated the impact of the safety net on health insurance coverage using an instrumental variables approach. Measures of tax appropriations and state and local support received by hospitals and FQHCs, state Disproportionate Share payments, state uncompensated care pool dollars, and the amount of state budget surplus or deficit were among the instruments used to assess the safety net. They also used standard techniques to control for sample members’ Medicaid eligibility. The researchers avoided the bias that occurred in previous cross-sectional designs due to unobserved differences across states that resulted in, for example, high levels of both uninsurance and safety net dollars by including state fixed effects. They were able to limit the analysis to within-state variation in health insurance coverage and health care safety net measures by including state fixed effects.

When the researchers excluded state fixed effects, they discovered that high levels of hospital uncompensated care were statistically significantly associated with higher levels of uninsurance and lower levels of both public and private insurance. According to their findings, a one standard deviation increase in hospital uncompensated care per population (a 46 percent increase) was associated with a three percentage point increase in the uninsurance rate among children. This result, while generally consistent with previous findings, did not account for unobserved state heterogeneity. When the researchers factored in state fixed effects, their findings revealed conflicting evidence about the extent of crowding-out. Uncompensated hospital care does not appear to crowd out health insurance coverage, whereas uncompensated health center care appears to crowd out private coverage for adults and, in some cases, children.

Less crowding for hospital uncompensated care may be plausible given that the majority of hospital uncompensated care pays for high-ticket items rather than more routine care that people may consider when making coverage decisions. The majority of the arguments against the exogeneity of their uncompensated care measures imply that their estimates should overstate the extent of crowding out. Similarly, their instruments’ potential endogeneity concerns suggest that they should exaggerate the extent of crowd-out. The fact that the researchers found no strong evidence of crowd-out suggests that the effects, if present, may be minor. More research into the determinants of uncompensated care provision is needed, which would shed light on the validity of potential uncompensated care instruments.
Safety net hospitals are in crisis in the U.S. How might you address several of the hospital system issues to assist in protecting the most vulnerable populations in your community?

Please use the resources listed below in the answer as well as other resources.

Key Facts about the Uninsured Population

100 Million People in America Are Saddled With Health Care Debt

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