Evolving Picture of Nine Safety-Net Hospitals: Implications of the ACA and Other Strategies

Safety-net hospitals are an integral part of the U.S. health care landscape, providing care to some of the nation’s most medically vulnerable populations, including Medicaid enrollees and the uninsured. These hospitals also provide high cost services such as trauma and burn care to all populations and serve as training centers for medical professionals. With the implementation of the Affordable Care Act (ACA), the U.S. health care system is rapidly changing, and safety-net hospitals need to make major adjustments to survive in the post-reform environment.

This brief draws on interviews with executives at nine safety-net hospital systems and examines how their hospitals have fared since major coverage provisions of the ACA came into effect in January 2014. The brief also examines new and ongoing strategies that the hospitals are adopting in the face of a quickly changing health care environment.  While acknowledging the importance of the ACA, executives at each system in the study noted that other non-ACA related factors have also shaped how their hospitals fared over the last year.  The hospitals in the study were:  Cook County Health and Hospital System (CCHHS); Denver Health (Denver Health); Harris Health System (Harris Health); New York City Health and Hospitals Corporation (HHC); Parkland Health and Hospital System (Parkland); Santa Clara Valley Health and Hospital System (SCVHHS); San Francisco General Hospital (SFGH); University Medical Center of Southern Nevada (UMC), and Virginia Commonwealth University Health System (VCU).  These hospitals participated in two earlier related studies1 that examined how the systems were preparing for health care reform.  Findings as reported by hospital executives include the following:

Changes in patient mix and financing were tied to state decisions about implementation of the Medicaid expansion for most hospitals.  The study hospitals are operating in very different environments in terms of the extent to which the ACA has been embraced by their state. Some of the study hospitals located in states that implemented the ACA Medicaid expansion (CCHHS, Denver Health, SFGH, and SCVHHS) reported substantial increases in Medicaid charges and declines in self-pay and charity care charges.   HHC and UMC also saw increases in Medicaid charges and declines in self-pay, although these shifts were less pronounced. For HHC in New York, the state was already covering most of the ACA Medicaid target population prior to reform. And in Clark County where UMC is located, a local indigent care fund was paying Medicaid rates for inpatient services it provided to the uninsured before health reform. So although UMC reported   an increase in Medicaid-insured patients, it has not experienced a significant change in overall revenue.

Study hospitals in states not implementing the Medicaid expansion (Harris Health, Parkland and VCU) did not experience large changes driven by increased coverage under the ACA, although VCU had gains related to long-term strategic investments to expand commercial business.   Denver Health also had gains in commercial revenue related to long-term strategic planning. Hospital executives at each of the nine systems commented that as of fall 2014 they have not cared for many individuals who had purchased coverage through the Marketplace. In New York, executives at HHC noted that they expected that enrollees in its qualified health plans (QHPs) would eventually result in increased demand for services; however, given that  a relatively small share of more than one million patients HHC has system-wide, this uptick had not yet been observed  in 2014.

Systems were implementing an array of strategies to retain and attract newly insured patients, including efforts to improve the patient experience and to change the perception of safety-net hospitals.  As more of the uninsured gain health insurance (primarily through Medicaid in states that have opted to implement the expansion), executives acknowledged that they were now competing with other hospitals for those newly insured patients. Efforts to retain and attract newly-insured patients included reducing waitlists, expanding system capacity, modifying hospital infrastructure, marketing the hospital, and engaging employees to better interact with patients.  Executives were mixed on the extent to which they were trying to attract newly insured Marketplace enrollees.  All hospitals except UMC, SFGH and CCHHS either had a QHP on the Marketplace or had contracts with QHPs.

In direct response to the ACA as well as broader market changes, systems were implementing delivery system changes to expand primary care, integrate care and broaden access.  Several of the systems were increasing capacity by partnering with providers “beyond their own walls.” For example, several hospitals were opening up additional primary care clinics, broadening community-based physician networks, and partnering with neighborhood federally qualified health centers (FQHCs), mental health and dental facilities.  Hospitals in California, Texas and New York were or were planning to use Section 1115 Medicaid DSRIP (Delivery System Incentive Programs) to help build a more integrated system and expand capacity.

Executives reported on a number of on-going financing strategies to maximize Medicaid waiver funds (largely 1115 waivers, including DSRIP), to diversify revenues, reduce costs and maximize collections. Hospitals in three study states (California, Texas and New York) were benefitting from funding tied to DSRIP. Illinois’s Section 1115 Waiver allowed CCHHS to create a program to expand Medicaid to the newly eligible ACA population before 2014.   Hospitals were also working to improve efficiency or to optimize billing and collection procedures.

Looking ahead, executives at the study hospitals had mixed outlooks for their systems that were not always aligned to state decisions about the ACA.  For example, despite operating in a state not implementing the Medicaid expansion, VCU leadership was perhaps the most positive, maintaining its strategy to diversify its revenue streams, developing niche service lines and expanding its service area, solidly positioning VCU in its health care market for the near term. Other hospitals, particularly those in states expanding Medicaid, were more optimistic about the opportunities afforded by the new coverage under the ACA.  However, several hospitals in states not implementing the Medicaid expansion (including Harris Health and Parkland) as well as some hospitals in expansion states (like SFGH and UMC) had more concerns about the future.

Despite having different outlooks for their futures, there was considerable consistency across leadership at the nine study hospitals in the challenges they anticipate facing in the future.  Some of these challenges include concerns about maintaining or growing their market share with newly insured patients, adequacy of Medicaid reimbursement and the implications of impending Medicaid disproportionate share hospital (DSH) cuts and of sustainability of Medicaid DSRIP waivers.  More broadly, executives were concerned about satisfying their mission to care for the remaining uninsured (including undocumented immigrants) at the same time when they question long-term political and public support for the safety net in a post-reform world.  Despite challenges, one executive noted that safety-net hospitals that had moved toward systems of health care were in a strong position to deliver care in line with the ACA’s focus on population health and social determinants of health.


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