How Will Safety-Net Hospitals Survive?


In the post-ACA era, safety-net hospitals will have to address at least two major changes to remain viable.

First, they will have to find new sources of funding and different payment methods as fee-for-service transforms and government financial support, such as the DSH funds and 1115 federal waiver money, dries up for multiple reasons including a decrease in uninsured patients.  A recent study by Dobson DaVanzo and Associates highlights the contributions that DSH hospitals make to vulnerable populations and it is not minor.  For example, according to the study “340B DSH hospitals provided $24.6 billion in uncompensated care, whereas non-340B hospitals provided $17.5 billion.  Although 340B hospitals accounted for only 35 percent of all hospitals in the analysis, 340B hospitals provided 58 percent of all uncompensated care. ”  Disproportionate Share Hospitals are eligible to participate in the 340B Drug Pricing Program.  As per the HRSA, “The 340B Drug Pricing  Program requires drug manufacturers to provide outpatient drugs to eligible health care organizations/covered entities at significantly reduced prices.  The 340B Program enables covered entities to stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”

Second, safety net hospitals are worried about attracting newly insured patients while maintaining their own patients in a market environment that privileges the non safety-net hospitals.  In short, safety net hospitals will have to continue their safety net function while at the same time competing with better resourced hospitals and health care systems.

A 2014 Kaiser study states the problem in blunt terms: “Under reform, increases in coverage will mean that safety-net hospitals will face increases in patient demand from those newly insured through Medicaid and the Health Insurance Marketplaces. At the same time, they will need to actively compete with private hospitals for those newly insured patients, a sea change for many safety-net hospitals’ organizational culture as historically they have focused on caring for the uninsured and underinsured.”

Much of the attention at safety-net hospitals has dealt with the need to change the organization culture and their care delivery system.  Lukas, Holmes and Harrison in their research calls these types of initiatives ‘strategic system redesign’: “Unlike traditional quality improvement activities,” they write “which may be highly focused and loosely aligned with one another, system redesign entails coordinated, managed improvement across multiple functional areas and levels of the organization.”

There are many examples, such as Steven Spear’s case studies, or Seattle Children’s hospital  that demonstrate how system redesign can be effective in different health care environments,  although not without protest and critics.  Our question is whether these programs will be enough for safety net hospitals to navigate the post- ACA era.

A case study of Cambridge Health Alliance suggests that are limits to redesign in the safety net setting.  Hacker et al write “The patient population, payer mix, service mix, cost structure, and political requirements reduce the likelihood of financial sustainability without significant changes in these factors, increased public funding, or both. Thus the future of safety-net institutions, regardless of payment and care redesign success, remains at risk.”

Lukas, Holmes and Harrison  likewise suggests that “Strategic system redesign is necessary, but not sufficient to ensure the financial health of safety-net systems in all situations.” They conclude that “To retain the extra value that safety-net systems provide while maintaining their financial viability, they will likely need continued government support and appropriate realignment of incentives.”  They further go on to note that success in redesign does not mean financial success: “Our recent study of eight safety-net hospital systems indicates that while system redesign is needed to meet the demands of the current health care environment, the association between strategic system redesign and operating margins is weak.”

Every safety net hospital and the market they operate in is different so it is of course hard to draw any over arching conclusions from these studies.  But it seems clear that the political battle over properly funding and maintaining safety-net hospitals will have to continue even as we work through strategic redesign at these hospitals.

Quality patient care  and improving the patient experience is paramount.  Maintaining existing patients and attracting new patients (and being able to keep them) is vital in the post-ACA world.  There is no doubt that strategic redesign is necessary for safety-net hospitals not only to survive but also thrive.  Yet, by itself strategic redesign is not enough.  It must be part of an overall plan and vision that includes better doctor engagement.  Funding and political and public support are also crucial.  How will safety-net facilities be funded, especially as they still have to care for uninsured immigrants and large amounts of Medicaid patients?  Is this a priority for society?  Does everyone deserve and have a right to quality care regardless of ability to pay?  That is the mission and purpose of safety-net hospitals and health facilities.

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