The Affordable Care Act (ACA) is changing the health care landscape for everyone, including safety net hospitals. Just how this change will affect these key providers and what they must do to stay open are subjects of much debate.  In a multitude of ways, the ACA, new marketplace dynamics, payment reform, and proposed federal Medicaid payment restrictions bring into serious question the financial viability of many of the nation’s 250 core safety net facilities.

To identify the challenges of ACA, researchers at the Boston University School of Public Health surveyed and interviewed staff of eight divergent safety net systems across the United States. With help from specialists, these safety net health systems are currently redesigning and reconfiguring their operations and finances in response to ACA. The Boston University researchers’ findings are described in a new report titled System Redesign Responses to Challenges in Safety Net Systems: Summary of Field Study Research. They found six challenges, three common to all safety net hospital systems.  The study was sponsored by the Agency for Healthcare Research and Quality (AHRQ).

Safety-Net Providers?

Safety net hospitals are broadly defined as those that provide a disproportionate amount of care to vulnerable populations. These hospitals may also provide specialized service, such as level 1 trauma or neonatal care, or provide medical professional training. Safety net hospitals are also distinguished by an “open-door policy” with regards the uninsured. A recent report summarizing an annual survey by America’s Essential Hospitals found that, although safety-net hospitals represent only 2 percent of acute care hospitals in the United States, they administer 20 percent of the uncompensated hospital care. In recent years, safety net hospital patients have broken down roughly as follows:

  • Uninsured: 18 percent
  • Commercial payor: 19 percent
  • Medicaid: 36 percent
  • Medicare: 25 percent
  • Other: 3 percent

For some facilities, it is not uncommon for publicly funded patients to represent 75% or more of utilization. All totaled, under the ACA, 79 percent of safety net hospital funding will be impacted in some degree.  This includes significant hospital payment cuts in Medicare and Medicaid made by the Democratic-controlled Congress in 2010 to finance the costs of the ACA.  Making matters worse, the Centers for Medicare and Medicaid Services (CMS) is proposing dramatic new policies that would highly restrict the ability of state Medicaid agencies to provide supplemental payments to safety net hospitals.

Challenges for Safety Net Hospitals

New government policy and marketplace changes increasingly focuses on access to integrated care and controlled costs setting “new expectations about population health, what care delivery will look like, and what payment models will be used.” For example, reimbursement will be increasingly tied to provider performance through value-based payment models.  These models typically do not adjust for risk relative to the differing population. Safety net hospitals tend to have sicker patients with more complex needs than other hospitals, putting them at a scoring – and therefore, financial – disadvantage. Because of their unique status, the Boston University team makes the following recommendations:

1. Infrastructure Changes

Due to their economic vulnerability, safety net providers may not have the resources necessary to implement infrastructure changes. The researchers recommend improved access to training and resources through reduced financial barriers, such as sliding fee scales or group discounts for safety net providers.

2. High Expectations

As shown with the value-based purchasing model, safety net providers are at a disadvantage when it comes to the new care delivery and payment models. Recommendations include proposal development training and technical assistance.

3. Inadequate Technology Capacity

The adoption of electronic health records (EHR) requires additional staffing, technology, and training. Safety net providers may need financial incentives and technical assistance to implement IT improvements and take full advantage.

4. Multiple Report Requirements

The number of reports needed for compliance with different aspects of ACA are overwhelming. The Boston University researchers recommend a “single set of measures to hold all health care systems accountable.”

5.  Financial Uncertainty

Funding is changing – and in many ways decreasing – under the ACA.  Historically, to help cover the costs of serving uninsured patients, hospitals have received disproportionate share hospital (DSH) funding from Medicaid and Medicare, with most of the DSH payments coming from Medicaid and going to safety net facilities.  The ACA mandates deep cuts in both Medicaid DSH and Medicare DSH funding.

The Future of Safety Net Systems

The focus of the ACA is improved access to health insurance coverage for the uninsured. These individuals are the core users of safety net hospitals. As such, the researchers recommend the creation of a consensus-building group composed of both policymakers and stakeholders to address the future of safety net providers in the new health care paradigm.

Safety net providers are scrambling to understand how this evolving environment will affect their ability to provide quality health care to their patients while staying financially viable and legally compliant.

While no simple, single solution exists, it is clear that a combination of training, funding, and flexibility on the part of policymakers to account for the unique challenges facing safety net hospitals will help them adapt to and survive in the new health care landscape.

The report was authored by Carol VanDeusen Lukas, EdD, Sally K. Holmes, MBA, Elisa Koppelman, MPH, MSW, Martin P. Charns, DBA, Cara Frigand, MS, Gouri Gupte, PhD, and Natasha Neal, MPH, all of the Boston University School of Public Health.

The findings are nicely summarized in this PowerPoint deck (PPT). Read the full report here (PDF).