HealthReformGPS is made possible through generous financial support from the RCHN Community Health Foundation. Visit them at

Commonwealth Fund study finds safety net hospitals are at risk

Posted on August 8, 2012 | No Comments

PDF Version
Implementation Briefs
Key Developments

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.

No Comments

Public comments are closed.

A new article published in Health Affairs finds that some safety-net hospitals will still face funding issues, even after implementation of the Affordable Care Act (ACA). The article cites rising healthcare costs, the number of Americans still without insurance, and the disproportionate share hospital payment reductions within the ACA as reasons contributing to the continuation of funding gaps for many safety-net hospitals. States that did not expand Medicaid may be particularly impacted by these funding gaps, as they will not be receiving federal expansion money to offset the cuts in the safety-net funds.
After the Affordable Care Act (ACA) is fully implemented, an estimated twenty-three million people will remain uninsured. Safety-net hospitals will thus continue to play a critical role in the US health care system. However, such hospitals will likely have less federal and state support for uncompensated care. Safety-net hospitals will need to reposition themselves in the marketplace to compete effectively for newly insured people who will have a choice of providers. A new article published in Health Affairs examines how five leading safety-net hospitals have begun preparing for reform. Building upon strong organizational attributes such as health information technology and system integration, the study hospitals’ preparations include improving the efficiency and quality of care delivery, retaining current and attracting new patients, and expanding the medical home model.
Affordable Care Act (ACA) provisions have spurred efforts to develop integrated health care delivery systems that seek to coordinate the continuum of health services. It remains to be seen how safety-net providers, which include community health centers and public hospitals, will be included in integrated delivery systems. An issue brief released by the National Academy of State Health Policy (NASHP) and the Commonwealth Fund explores key considerations for incorporating safety-net providers into integrated delivery systems and discusses the roles of state and federal agencies in supporting and testing models of integrated care delivery. The authors conclude that the most important principles in creating integrated delivery systems for vulnerable populations are: 1) an emphasis on primary care; 2) coordination of all care, including behavioral, social, and public health services; and 3) accountability for population health outcomes.
In a Commonwealth Fund-supported report recently published in the New England Journal of Medicine, researchers found that U.S. regions where discharged hospital patients are readmitted at comparatively high rates are often the same regions where overall hospitalization rates are high. This relationship indicates broad, systemic problems within the U.S. health care system. The study, conducted by Arnold Epstein, M.D., Ashish Jha, M.D., and John Orav, Ph.D., examined rehospitalization rates across the country for Medicare patients with congestive heart failure and pneumonia, while also looking at how other variables, such as overall hospitalization rates, differences in patients' coexisting conditions, quality of discharge planning, and the number of hospital beds and physicians, affected readmissions. Of all the potential causes for regional differences in readmission rates, overall hospital admission rates played the biggest role, accounting for 16 percent to 24 percent of the variation in cases of congestive heart failure and 11 percent to 20 percent for pneumonia cases. No other factor accounted for more than 6 percent of the variation.
On June 22, 2012, the Internal Revenue Service and Treasury Department released for public view a notice of proposed rulemaking (NPRM) regarding the obligations of nonprofit hospitals seeking federal tax-exempt status. The NPRM deals with that portion of the ACA related to the obligation of nonprofit hospitals to maintain financial assistance and emergency medical care policies, as well as certain billing and collection policies, as a condition of federal tax exemption. The NPRM comment period will be for 90 days following Federal Register publication. The agencies have identified...
Historically, the Medicare program has passively purchased health care services for Medicare beneficiaries. Hospitals and other providers delivered services to Medicare beneficiaries and the Medicare program paid for the services without any indication of the quality or value of the care delivered. However, as costs have continued to escalate at an explosive pace without discernible improvements in the quality of care delivered, Congress and Medicare administrators have re-evaluated this passive payment methodology. Premised on the belief that the Medicare program must transition to be an active purchaser of high quality, cost-effective care, value-based purchasing uses financial incentives to both incentivize improved quality of care delivery and reduction of costs.
This implementation brief examines the addition of Section 501(r) to the Internal Revenue Code under the Affordable Care Act (ACA), which sets out new requirements for not-for-profit, tax-exempt hospitals.
CMS has issued a proposed rule on a value-based purchasing program for hospitals. The program was recently authorized by the Affordable Care Act, and will provide incentive payments to to hospitals who meet or exceed certain performance standards.
CMS issued a final rule on the Medicare Outpatient Prospective Payment System (OPPS) for hospitals. The rule aligns Medicare payments with new provisions in the Affordable Care Act and describes factors used to determine payment rates for Medicare hospital outpatient services.
Health and Human Services Secretary Kathleen Sebelius has announced that the Centers for Medicare and Medicaid Services will enroll up to an additional 20 hospitals in the Rural Community Hospitals Demonstration. Ten hospitals are already participating in the program created by the health reform law, which provides enhanced reimbursements for inpatient services. The agency's announcement explains, "The goal of the program is to test the feasibility and advisability of cost based reimbursement for small rural hospitals that are too large to be Critical Access Hospitals."