Under ACA, safety-net hospitals still face financial peril

Even though more Californians will be insured under the Affordable Care Act, the state’s safety-net hospitals are still in jeopardy, according to a study by the UCLA Center for Health Policy Research and Virginia Commonwealth University.

Funds from those newly insured under the Affordable Care Act may not compensate for cuts in disproportionate share hospital (DSH) funding to public hospitals and other financial pressures, the study finds.

DSH funds are money the federal government distributes to help hospitals cover uncompensated care and Medicaid shortfalls. Since the level of uncompensated care is expected to decrease under the ACA, the law calls for cuts in that funding. As a result of those cuts and growing health care costs, California hospitals could face a $1.54 billion shortfall in 2019, when those cuts will likely go into effect, the report found.

That’s largely because of the high number of people who will still be uninsured despite the ACA, as well as low Medicaid reimbursement rates and rising medical costs. Without Obamacare and the additional number of Americans now covered by insurance, uncompensated costs at these hospitals would have risen even higher.

“The financial outlook is better under ACA than it would have been in the absence of the bill, that’s certainly true,” said Anna Davis, an author of the study that was published in the June issue of the journal Health Affairs. “Nevertheless, these hospitals could face real financial challenges and experience funding shortfalls. These funding gaps could threaten their future financial stability.”

The recent study paints a very plausible scenario of how public health systems may fare under health reform, said Erica Murray, president and CEO of the California Association of Public Hospitals and Health Systems (CAPH).

Cuts in DSH funding need to correspond to actual reductions in uncompensated care costs, she said, adding: “The ACA's Medicaid DSH reductions assume that coverage expansion will lead to a reduction in uncompensated care, but we don't yet know the degree to which that will be true.”

The state’s safety-net hospitals are critical to the overall health system since many serve as Level 1 trauma centers, burn centers, and lead regional disaster responses. They are also teaching hospitals, and many are located in low-income areas, where fewer patients carry private insurance. (This 2013 report from California HealthCare Foundation takes a close look at the state’s safety-net population.)   

While the recent study focused on California, public hospitals across the country are facing similar stressors as health care costs grow, Davis said.  Some of those hospitals will likely shoulder even greater financial burdens – especially those in states that haven’t expanded Medicaid. (Here’s a great summary and a map of the Medicaid expansion and here’s an editorial discussing how the failure to expand Medicaid is hurting some hospitals nationwide). 

Unlike California, some states don’t target DSH funding to hospitals that shoulder a disproportionate share of uninsured or underinsured patients. States such as Ohio and Georgia spread their DSH payments more broadly, Davis said.  

Overall, safety-net hospitals are being forced to compete in an environment in which insured patients are choosing their “provider of choice” instead of the “provider of last resort.”

Losing newly-insured patients is “a potential risk hospitals will need to address,” Davis said. “Any time patients gain insurance, they’re faced with a new array of choices.”

Many hospitals, especially those at risk for funding shortfalls, are trying to keep and attract patients by emphasizing customer service and delivery of care. This study looked at what five leading safety-net hospitals were doing to prepare for the new landscape, such as improving the efficiency of their care delivery and staffing. And this report examines strategies for improving safety-net hospitals’ financial health, such as partnering with federally qualified health centers.

In California, safety-net hospitals are already working to improve their quality of care and efficiency through more integrated and coordinated delivery, according to Murray, the CAPH president. Those concrete improvements include embracing the medical home model of care; using disease registries; and stationing navigators in emergency departments to link patients to primary care.

The recent Health Affairs report recommended that policymakers across the country target existing DSH funding to the safety-net hospitals that serve the most uninsured and Medicaid patients. They also suggest that states that expanded Medicaid under the ACA follow California’s model of paying higher reimbursement rates to safety-net hospitals for patients who are newly eligible. And, they advise leaders of safety-net hospitals in states that didn’t expand Medicaid to seek out additional funding from their county and state.

In California, Davis stressed the need for policy makers at the state and federal level to monitor the financial stability of public hospitals. 

“They’re a vital community resource,” she said. “And, for many patients, they’re the main source of care.”

Photo by SPUR via Flickr.