Researchers, states and federal policymakers have used a broad range of definitions to characterize safety net hospitals. While the definitions vary, a common theme is that safety net hospitals provide a disproportionate amount of care to vulnerable populations. However, how vulnerable, disproportionate, or care is defined varies greatly. To complicate matters, what constitutes a safety net hospital can vary from community to community (Baxter and Mechanic 1997). For example, in some communities, such as Dallas, a single public hospital is the heart of the local safety net. By contrast, in Milwaukee, which recently closed its public hospital, a few community hospitals form the safety net.
Which hospitals are ulti amately identified as safety net providers has important implications for evaluating whether DSH payments are well targeted: Is the purpose to help relieve hospitals financial burden of caring for low-income populations? Help hospitals in financial distress? Protect low-income Medicare and Medicaid recipients' access to care? Compensate hospitals for providing care to the uninsured? Help states and local governments in areas with high levels of need? Encourage selected hospital behavior suchs providing special services — teaching, emergency room care, trauma care and the like? Or, perhaps, the purpose is some combination of these. The definition of safety net hospital that is adopted has direct implications for which facilities would receive money under a federal DSH fund.
What Is a Safety Net Hospital?
Below we highlight some of the key dimensions to describing a safety net hospital and how researchers and policymakers have defined safety net hospitals. A summary of these is provided in Table 2.1.
Safety Net Hospitals: Key Dimensions and Definitions
|Research and Policy Definitions|
|Legal Mandate or Mission|
- Clinton Health Care Proposal: Legal mandate and in area of high need
- Gaskin and Hadley: Mandate or mission driven or high share of low-income discharges
- Medicare DSH formula: Medicaid and Medicare/SSI recipients
- Basic Medicaid DSH formula: Three available options, which can be used separately or jointly
- d) Medicare DSH formula
- e) Medicaid recipients only or
- f)Low-income populations including Medicaid and indigent persons
- Medicaid DSH option: states free to establish own criteria for vulnerable populations
- IOM: uninsured, Medicaid, and other populations such as people with HIV or mental illness.
|Disproportionate Amount of Care||Volume of care:|
- Medicare DSH Formula: threshold volume of Medicaid and Medicare SSI patients depending upon selected hospital characteristics such as size and location
- Federal Medicaid DSH minimum standards:
- Hospital's Medicaid inpatient rate at least 1 S.D. above state mean Medicaid inpatient rates
- a)Hospital's "low-income use rate" (Medicaid and charity care patients)1>25%
- b)Many states pay DSH to other hospitals as well
- c)Costs of uncompensated care:
- Top 10% of hospitals providing most bad debt and charity care (Baxter and Mechanic 1997)
- Top 10% of hospitals with highest ratio of bad debt and charity care to operating expense (Fishman 1997)
- Ratio of hospital's uncompensated care to hospital's total costs >10% (Cunningham and Tu 1997)
Type of care:
Provision of certain types of services (e.g. ER, trauma, burn) as indication of safety net hospital
|Level of Aggregation|
- Hospital Type
1. Low income use rate is the sum of two ratios. The first is the share of the hospital's total revenue for patient services that are paid by Medicaid or state/local subsidies. The second is the percent of total hospital charges for inpatient services accounted for by the net (of state and local subsidies for inpatient care) amount of charity care provided to inpatients.
How Should Financial Vulnerability Be Defined?
Developing and evaluating alternative methods for distributing Medicare and Medicaid DSH payments requires measures of the financial pressure faced by each safety net hospital. The measures serve two potential purposes. First, one or more of them could be used as an explicit factor in allocating funds to safety net hospitals. The measures most appropriate for this purpose would be those that are directly related to serving low-income populations such as uncompensated care. Second, more general measures such as a hospital's margin could be used to evaluate how well the DSH allocation policy targets financially vulnerable safety net hospitals without being explicitly incorporated into the allocation formula.
The literature concerning safety net hospitals and the current policies for Medicare and Medicaid DSH payments suggest a set of policy issues related to the distribution of DSH funds.
- To what extent should DSH funds be targeted on core safety net providers that are financially vulnerable? Should hospitals that are able to cover losses attributable to uncompensated care and Medicaid shortfalls receive subsidies? Some hospitals that provide a substantial volume of services to low- income patient populations are not financially vulnerable because they are able to generate sufficient revenue (in the absence of government subsidies) to cross-subsidize the cost of caring for low- income patients.
- How can the allocation policy be structured to maintain or enhance level of effort regarding Medicaid eligibility and reimbursement rates as well as programs to subsidize care provided to the uninsured?
- Should a threshold be used to target DSH payments on those hospitals that serve as core safety net hospitals? What are the implications for communities where caring for the uninsured is shared across hospitals relative to those where it is concentrated in a few hospitals?
Underlying these major policy issues are empirical questions regarding the sensitivity of the allocations to different measures that could be used to define financially vulnerable safety net hospitals. These questions are important in understanding the impact the policy choices could have on the distribution of DSH funds to particular hospitals and identifying those choices where administrative preferences for readily available measures would have little practical effect on the distributions. In the remainder of this report, we examine the current distribution of DSH across classes of hospitals and analyze how different measures of financially vulnerable safety net hospitals would affect 1) the set of hospitals eligible to receive federal subsidies and 2) the distribution of funds among those hospitals.