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Commonwealth Fund study finds safety net hospitals are at risk

Posted on August 8, 2012 | No Comments

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Safety-net hospitals play a vital role in serving uninsured and low-income populations, especially in large urban communities, but little is known about the factors that influence their financial viability. To identify these factors, the authors of a new Commonwealth Fund–supported study compared the financial performance of 150 safety-net hospitals, examining governance type, financial performance, and market concentration, among other variables. To further clarify their findings, the authors conducted site visits at nine hospitals.

The researchers segmented safety-net hospitals into four categories: public hospitals that are directly governed by elected officials; public hospitals with governing authority that has been delegated to political appointees; private, nonprofit hospitals; and private, for-profit hospitals. They found that safety-net hospitals governed directly by elected officials had the highest operating margins between 2003 and 2007 (7.0%), followed by public delegated ones (0.7%), nonprofit safety-net hospitals (–0.09%), and for-profit safety-net hospitals (–2.0%). However, the financial advantages of direct public governance were limited to the most competitive markets.

Interviews with hospital leaders suggest the higher margins are linked to an ability to negotiate larger government subsidies. Some of the directly controlled hospitals and one of the delegated public authority hospitals the authors visited received local subsidies of between 25 percent and 35 percent of total revenues. In contrast, none of the private, nonprofit sites received local government subsidies. The site visits also revealed that private, nonprofit safety-net hospitals developed strong financial control systems and pursued strategies to attract insured patients.

Safety-net hospitals that currently rely on politically negotiated funding must adapt to increasing fiscal austerity and intensified competition by revamping their business strategies.

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