Safety net hospitals are critical providers of medical care to low-income uninsured and other vulnerable populations. In addition to being the major providers of inpatient, emergency, outpatient, and many types of specialty care for uninsured people, they often are the sole providers of certain critical services in the community, such as trauma and burn care, as well as inpatient behavioral health. Safety net hospitals often operate with low or negative margins, in large part because a high proportion of patients are either uninsured or Medicaid beneficiaries, for whom patient revenues often do not cover the costs of providing care. To cover the costs of uncompensated care, most safety net hospitals receive subsidies from federal, state, and/or local governments.
The Affordable Care Act (ACA) creates both opportunities and challenges for safety net hospitals. Health insurance coverage expansions through Medicaid and the state-based marketplaces are expected to increase patient revenues and reduce uncompensated care (typically defined as the combination of charity care and bad debt) for hospitals. However, many safety net hospitals are concerned that these gains may not be sufficient to offset planned reductions in Medicaid and Medicare Disproportionate Share Hospital (DSH) payments, which may affect their ability to care for patients who remain uninsured. In addition, safety net hospitals are concerned about their capacity to meet the increased demand for care that they expect will occur with the insurance coverage expansions.
Other provisions of the ACA could also directly or indirectly affect safety net hospitals, such as whether health plans that operate in the new marketplaces include safety net hospitals as “essential community providers” in plan networks. In addition, competition with other hospitals may also increase as providers seek greater alignment and integration with one another; such integration is encouraged by federal incentives and demonstration programs for the purpose of increasing the efficiency, coordination, and quality of care. Although many safety net hospitals are attempting to align themselves with these new delivery systems, including Accountable Care Organizations (ACOs) for various payers (Medicare, Medicaid, or commercial), they face a number of potential barriers to ACO participation that may not be experienced by other hospitals.
Although safety net hospitals receive federal subsidies and grant support for various activities, there are no federal requirements that these facilities provide data on hospital utilization, capacity, and finances in a manner that would facilitate the government’s ability to quantify the impact of health reform on safety net hospitals. This is in contrast to federally funded health centers, which are the major safety net providers of primary care and other outpatient services to uninsured and other medically underserved populations. Health centers receive federal grants from the Health Resources and Services Administration (HRSA) within the Department of Health and Human Services (HHS) and are required to provide detailed data to HRSA annually on health center patients, utilization, services, staffing, and financial performance.
Because safety net hospitals will continue to be essential providers of inpatient, emergency, ambulatory care, and specialty services to an estimated 31 million Americans who will remain uninsured after the implementation of health insurance coverage expansions, the Office of the Assistant Secretary for Planning and Evaluation (ASPE) has a compelling interest in understanding how safety net hospitals will be affected by health care reform. This includes the effects of insurance coverage expansions on hospital utilization, capacity, and finances, as well as on their ability to adapt to changes in payment and delivery system reforms. To this end, ASPE has asked The Center for Studying Health System Change (HSC) to develop the key hypotheses and planning documents for assessing and monitoring the impact of the ACA on safety net hospitals. The ultimate purpose of this task was to identify the major research questions and develop a strategy for conducting case studies on how safety net hospitals are being affected by and responding to health reform.
This report provides an environmental scan of the issues that safety net hospitals are likely to encounter with the implementation of health care reform. Specifically, the objectives of the environmental scan are to (1) develop a conceptual framework for understanding the effects of the ACA on safety net hospitals, (2) identify the major research questions and hypotheses concerning both the direct and indirect effects of the ACA on safety net hospitals, and (3) identify the “ideal” list of key indicators needed for monitoring safety net hospitals during implementation of health care reform. The environmental scan will be used to inform the development of a strategy for conducting case studies of the effects of the ACA on safety net hospitals. Additional reports for this task will include an assessment of data sources and metrics that will be available for tracking changes in safety net hospitals during and after implementation of the ACA, as well as a report on a plan and methodology for conducting case studies.