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Safety net hospitals face looming care crisis

Major funding cuts on the horizon could eliminate or significantly reduce the ability of many safety net hospitals to provide care for the uninsured and underinsured, a new study finds.

A total of 529 acute-care hospitals were identified as having a “high reliance” on funding from the Medicaid disproportionate-share hospital (DSH) payments program—those whose proportion of Medicaid DSH payments received accounted for more than 2.5% of their total revenues, according to an analysis of 2011 data from more than 2,100 hospitals published this month in the journal Health Affairs.

Of those hospitals most dependent on DSH payments, 225 facilities were considered to be in “weak financial shape” compared with 68 that were found to be in “strong financial shape.”

“Policy makers should recognize that many hospitals that will be affected by cuts in Medicaid DSH payments are already financially weak, and that decreases in revenue may affect their ability to provide vulnerable populations with access to care,” the study authors wrote.

The impact of the DSH cuts could be most deeply felt by hospitals in states that have not expanded Medicaid for all adults earning up to 138% of the federal poverty level. The study found that 29% of those hospitals were in a financially weak condition compared with 21% of DSH-eligible hospitals in expansion states.

Medicaid disproportionate-share payments have been used to offset the costs incurred in providing uncompensated care. The bulk of payments have traditionally gone to safety net hospitals serving large low-income populations.

Both Medicare and Medicaid DSH payments covered $21 billion of the $44 billion in uncompensated care costs hospitals amassed in 2013, according to a previous Health Affairs study published in May.

It was thought that the need for DSH payments would decrease as millions gained health coverage through the Patient Protection and Affordable Care Act. But the U.S. Supreme Court's decision in 2012 allowing states the choice to expand Medicaid eligibility or not left coverage gaps in some of the poorest areas of the country. The Congressional Budget Office has projected that as many as 31 million Americans could still be without health insurance by 2024. Medicaid DSH payments are expected to be reduced by more than $35 billion between fiscal years 2017 and 2024.

An analysis released in August by America's Essential Hospitals found that most of its 250 member safety net hospitals operated at a loss in 2012 with an overall average operating margin of -0.4%, compared with an average margin of 6.5% for all hospitals nationwide during that year.

“What you're looking at is, can you sustain yourself over time,” said Charlie Shields, CEO of Truman Medical Centers in Kansas City, Mo., in an interview Friday with Modern Healthcare. Truman is a two-hospital safety net system that provided more than $117 million in uncompensated care in fiscal year 2014. “Without [Medicaid] expansion and with the DSH cuts that are scheduled in 2017, 2018 and 2019, that's a difficult position,” Shields said.

Follow Steven Ross Johnson on Twitter: @MHsjohnson


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