Approximately 1,500 hospitals nationwide are known as “safety net” providers because they care for a larger portion of uninsured patients than their competitors.
Under the Affordable Care Act, the safety-net hospitals will gain a new source of revenue when millions of the uninsured gain coverage. At the same time, the law’s spending cuts could prove challenging for hospitals that tend to operate with relatively small profit margins.
“This is a time of uncertainty for them,” said Stu Guterman, vice president of the Commonwealth Fund. “On the one hand, they should be thrilled because a lot of the patients they treat will have payment attached to them. On the other, they’re losing some of the funding they rely on.”
A report released Tuesday by the private consulting firm Alvarez & Marsal warned that the health-care law “may actually worsen the status of many safety net hospitals.”
The Affordable Care Act layers three big spending cuts on top of reductions that states have made during the recession.
First, the law slows the rate of regularly scheduled pay bumps from the federal government, meant to help hospitals keep pace with growing health-care costs.
Safety-net hospitals also will bear the brunt of cuts in “disproportionate share payments,” money that the federal government sends hospitals that cover a high level of uninsured patients. These payments, which come from the Medicaid and Medicare programs, will fall by more than $30 billion over the next decade.
Health experts initially thought that those funds would become unnecessary as the expanded access to health coverage lessened demand for uncompensated care. After the Supreme Court declared the Medicaid expansion optional, several Republican governors declined to move forward, leaving hospitals worried that they will still see high numbers of uninsured patients.
Last, the health-care law tethers a small portion of hospitals’ Medicare payments to the quality of care they provide and to patient satisfaction rankings. If hospitals don’t hit certain targets, they stand to lose 1 percent of their Medicare income.
Safety-net hospitals, separate research suggests, may have a tough time hitting the goals, because they tend to receive lower patient satisfaction ratings than competitors who treat fewer uninsured people.
“The challenge for a lot of these institutions are that they rely heavily on federal subsidies,” study author David Gruber said. “Now it’s like a tsunami of cuts hitting at the same time.”
Researchers who have studied the safety-net hospitals echo some of the report’s concerns but note that the health law offers many benefits for these providers.
“What the Affordable Care Act really means for the hospitals is going to vary,” said Teresa Coughlin, a health policy researcher at the Urban Institute. “It will depend on whether their states take the Medicaid expansion, how many people are left uninsured, and what happens with state and local funding.”
Coughlin recently published a study looking at how five large safety-net systems were adapting to the health-care law. Some, she said, are building new facilities and putting a new focus on quality, so they can compete for the patients who do gain coverage under the health law.
“It’s not all doom and gloom,” Coughlin said.
The Obama administration has responded to some of the hospitals’ concerns. In the president’s budget released last week, the White House proposed delaying some of the cuts in disproportionate share payments by one year, as states continue to debate the Medicaid expansion.
Still, safety-net hospitals remain concerned over what lies ahead under the health law.
"It’s a more challenging environment when you have all these issues colliding at once,” said John Haupert, president of Grady Health System.
The Atlanta-based hospital system estimates that 30 percent of its patients lack insurance coverage and an additional 30 percent receive Medicaid, which tends to pay lower rates than private health plans.
When Grady ran the numbers, it found that it would lose $45 million annually under the health law’s Medicaid cuts to disproportionate share payments. That works out to be about 7 percent of the hospital’s $670 million budget. If those cuts go through, Haupert said, he has thought about cutting back on some of the clinical services the hospital system provides. However, many of its uninsured patients will become eligible for coverage next year.
“Clearly we’re faced with lots of decisions,” Haupert said. “We’ve done some brainstorming. None of it will be an easy decision.”