Can safety net hospitals be saved? New report offers some suggestions

Federal health reform has hospitals across the U.S. anticipating a squeeze on their finances, and none more so than publicly funded safety net hospitals that serve large numbers of low-income patients.

Safety net hospitals are facing a host of challenges, including declining reimbursements; a heavy reliance on patients with Medicaid, which pays health providers less than Medicare and private insurers; rising technology and personnel costs; and stress on state and local budgets.

It’s no coincidence that the CEO of Cleveland’s public safety net hospital, MetroHealth System, has labeled public hospitals “an endangered species” and has called health reform “a freight train heading toward us.”


So, how can safety net hospitals survive? A report from by the Commonwealth Fund Commission could offer a road map.

Here are the report’s three major suggestions to strengthen safety net hospitals:

Increase Medicaid payment rates based on performance: Safety net hospitals’ heavy reliance on Medicaid and its low reimbursement rates is perhaps what makes them most vulnerable. The bad news is that Medicaid is likely to play an even larger role for safety net hospitals after health reform because the legislation greatly increases the number of Americans covered by the program. Plus, much of the funding for Medicaid comes from state governments, which are increasingly struggling to balance their budgets.

The report recommends that states should consider increasing Medicaid reimbursement rates based on hospitals’ performances. “Tying payments to performance and improvement targets would offer a means to address quality and access concerns at a time when state Medicaid rates are otherwise low and state resources limited,” a statement from the Commonwealth Fund said.

More precisely target Medicare and Medicaid DSH payments: Medicare and Medicaid Disproportionate Share Hospital (DSH) payments pay hospitals to care for low-income patients. The problem for safety net hospitals is that health reform calls for $21 billion in cuts to Medicare DSH payments over 10 years and $14 billion in Medicaid DSH cuts between 2014 and 2020.

The report recommends a more precise targeting of DSH payments, in which priority is given to covering the uncompensated care costs of uninsured patients. Medicaid DSH dollars should be targeted first to hospitals that serve uninsured patients and should be paid out based on services provided to uninsured patients, according to the Commonwealth Fund.

Provide hospitals with other means of accessing capital: Safety net hospitals frequently have limited access to capital and will likely require public support to invest in projects to upgrade facilities and purchase medical equipment. Medicaid waivers that enable federal and state governments to target financial support for high priority capital projects and system restructuring at safety net hospitals could be a way of providing that funding. New York and California have already used such waivers with success, according to the Commonwealth Fund.

[Photo from flickr user jronaldlee]

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