How did safety-net hospitals cope in the 1990s?

Health Affairs

Volumn 20, Issue 4, 2001, Pages 159-168

  Zuckerman, Stephen ^a   Bazzoli, Gloria ^b   Davidoff, Amy ^c   LoSasso, Anthony ^d  

^a URBAN INSTITUTE   (United States)

^b VIRGINIA COMMONWEALTH UNIVERSITY SCHOOL OF MEDICINE   (United States)

^c Northwestern University ^*

^d NORTHWESTERN UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

ARTICLE; COMMUNITY CARE; ECONOMICS; FINANCIAL MANAGEMENT; HEALTH CARE DELIVERY; HEALTH CARE FACILITY; HEALTH INSURANCE; HEALTH SERVICE; HOSPITAL; MEDICAID; ORGANIZATION; ORGANIZATION AND MANAGEMENT; PATIENT; UNITED STATES; UTILIZATION REVIEW;

FINANCIAL MANAGEMENT, HOSPITAL; HEALTH FACILITY CLOSURE; HEALTH FACILITY MERGER; HEALTH SERVICES ACCESSIBILITY; HEALTH SERVICES NEEDS AND DEMAND; HOSPITALS, URBAN; MANAGED CARE PROGRAMS; MEDICAID; MEDICALLY UNINSURED; ORGANIZATIONAL INNOVATION; UNCOMPENSATED CARE; UNITED STATES;

EID: 0035406353     PISSN: 02782715     EISSN: None     Source Type: Journal    
DOI: 10.1377/hlthaff.20.4.159     Document Type: Article

References (42)

1. G. Melnick, J. Mann, and A. Bamezai, "Preliminary Findings: Hospital Uncompensated Care Not Keeping Pace with Per Capita Spending," HCFO New-sand Progress (March 2000).
2. R.J. Baxter and R.E. Mechanic, "The Status of Local Health Care Safety Nets," Health Affairs (July/Aug 1997): 7-23.
3. G. Bazzoli et al., "Hospital Reorganization and Restructuring Achieved through Merger," Institute for Health Services Research and Policy Studies Working Paper no. 00-09 (Evanston, Ill.: Northwestern University, 2000).
4. S. Walston, L. Burns, and J. Kimberley, "Does Reengineering Really Work? An Examination of the Context and Outcomes of Hospital Reengineering Initiatives," Health Services Research (February 2000): 1363-1388.
5. Bazzoli et al., "Hospital Reorganization."
6. Baxter and Mechanic, "The Status of Local Health Care Safety Nets."
7. Institute of Medicine, America's Health Care Safety Net: Intact but Endangered (Washington: National Academy Press, 2000).
8. Ibid.
9. Baxter and Mechanic, "The Status of Local Health Care Safety Nets"; and L.E. Fishman and J.D. Bentley, "The Evolution of Support for Safety-Net Hospitals," Health Affairs (July/Aug 1997): 30-47.
10. Baxter and Mechanic, "The Status of Local Health Care Safety Nets"; and L.E. Fishman and J.D. Bentley, "The Evolution of Support for Safety-Net Hospitals," Health Affairs (July/Aug 1997): 30-47.
11. J.M. Mann et al., "A Profile of Uncompensated Hospital Care, 1983-1995," Health Affairs (July/Aug 1997): 223-232.
12. Fishman and Bentley, "Evolution of Support."
13. Ibid.; P.J. Cunningham and H.T. Tu, "A Changing Picture of Uncompensated Care," Health Affairs (July/Aug 1997): 167-175; and G. Atkinson, D. Helms, and J. Needleman, "State Trends in Hospital Uncompensated Care," Health Affairs (July/Aug 1997): 233-241.
14. Ibid.; P.J. Cunningham and H.T. Tu, "A Changing Picture of Uncompensated Care," Health Affairs (July/Aug 1997): 167-175; and G. Atkinson, D. Helms, and J. Needleman, "State Trends in Hospital Uncompensated Care," Health Affairs (July/Aug 1997): 233-241.
15. Ibid.; P.J. Cunningham and H.T. Tu, "A Changing Picture of Uncompensated Care," Health Affairs (July/Aug 1997): 167-175; and G. Atkinson, D. Helms, and J. Needleman, "State Trends in Hospital Uncompensated Care," Health Affairs (July/Aug 1997): 233-241.
16. American Hospital Association, Annual Survey of Hospitals (Chicago: AHA, 1990 and 1997).
17. Thomas Rundall and colleagues found that variation in accounting practices across hospitals made it impossible to make a meaningful distinction between charity care and bad debt. T. Rundall, S. Sofaer, and W. Lambert, "Uncompensated Hospital Care in California: Private and Public Hospital Responses to Competitive Market Forces," Advances in Health Economics and Health Services Research 9 (1988): 113-133.
18. One difficulty with the AHA annual survey is the underreporting of confidential financial variables such as the components of uncompensated care. About 15 percent of urban, nonfederal, short-term general hospitals did not provide data that allowed us to compute uncompensated care in 1990. To derive a value of uncompensated care for hospitals with missing values, we used a regression - based prediction. The model-based on previous research by the authors - included as independent variables market demographics, hospital market characteristics, hospital characteristics, and a series of state indicator variables. The regressions were estimated separately for three ownership groups, using ordinary least squares, with R-squares for the regressions ranging from 0.60 to 0.85. This process was repeated for 1997. Details are available from Stephen Zuckerman, .
19. The IOM definition of safety-net providers would have suggested including both Medicaid and other vulnerable populations as well as uncompensated care patients in our definition. We focus on uncompensated care provision as opposed to Medicaid or care to specific vulnerable groups. In part, our rationale is that Medicaid patients have insurance coverage. Although base Medicaid payment rates have historically been low relative to those of private payers, they tend to cover a high percentage of patient costs. Medicare Payment Advisory Commission, Rep art to the Congress: Selected Medicare Issues (Washington: MedPAC, June 2000), 186.
20. In 1990 hospitals with an uncompensated care burden of > 9.2 percent of expenses were included in the high-burden group.
21. Examples of hospitals falling into our three categories of safety-net hospitals include the following (from case studies conducted as part of the Urban Institute's Assessing the New Federalism study): Boston City Hospital (now Boston Medical Center) falls into the high market share/high burden group (Group 1). This large, formerly public hospital has historically played an important role in indigent care delivery. Massachusetts General Hospital falls into the high market share only group (Group 2). This is a large teaching hospital in Boston that because of its size provides a substantial amount of uncompensated care as well as a substantial amount of care to insured populations. Somerville Hospital (now part of the Cambridge Health Alliance) falls into the high burden only group (Group 3). This small, nonprofit hospital is not a major teaching institution but provides a disproportionately large share of the Medicaid inpatient days in the Boston MSA relative to its size. See N. Brennan, S. Guterman, and S. Zuckerman, How Are Safety Net Hospitals Responding to Health Care Financing Changes? (Washington: Urban Institute, 2001).
22. D. Gaskin, Safety Net Hospitals: Essential Providers of Public Health and Specialty Services (New York: Commonwealth Fund, February 1999).
23. Hospital closures include the small number of facilities that converted to non-acute care services, effectively leaving the hospital market.
24. The share of Group 3 hospitals providing maternity care actually increased by the greatest magnitude (6.2 percentage points), but the change was not quite statistically significant (p > .05).
25. As a result of expansions in Medicaid eligibility, the proportion of births financed by Medicaid rose from 15 percent in 1985 to 32 percent in 1991 and to 39 percent in 1995. As a result of welfare reform and the associated drop in Medicaid enrollment, only 35 percent of births were covered by Medicaid in 1997. See J. Frost et al., State Implementation of the Medicaid Eligibility Expansions for Pregnant Women (New York: Alan Guttmacher Institute, 1993); National Governors' Association, States Have Expanded Eligibility through Medicaid and the State Children's Health Insurance Program (Washington: NGA, 1999); and NGA, Income Eligibility for Pregnant Women and Children (Washington: NGA, 2000).
26. As a result of expansions in Medicaid eligibility, the proportion of births financed by Medicaid rose from 15 percent in 1985 to 32 percent in 1991 and to 39 percent in 1995. As a result of welfare reform and the associated drop in Medicaid enrollment, only 35 percent of births were covered by Medicaid in 1997. See J. Frost et al., State Implementation of the Medicaid Eligibility Expansions for Pregnant Women (New York: Alan Guttmacher Institute, 1993); National Governors' Association, States Have Expanded Eligibility through Medicaid and the State Children's Health Insurance Program (Washington: NGA, 1999); and NGA, Income Eligibility for Pregnant Women and Children (Washington: NGA, 2000).
27. As a result of expansions in Medicaid eligibility, the proportion of births financed by Medicaid rose from 15 percent in 1985 to 32 percent in 1991 and to 39 percent in 1995. As a result of welfare reform and the associated drop in Medicaid enrollment, only 35 percent of births were covered by Medicaid in 1997. See J. Frost et al., State Implementation of the Medicaid Eligibility Expansions for Pregnant Women (New York: Alan Guttmacher Institute, 1993); National Governors' Association, States Have Expanded Eligibility through Medicaid and the State Children's Health Insurance Program (Washington: NGA, 1999); and NGA, Income Eligibility for Pregnant Women and Children (Washington: NGA, 2000).
28. Other studies have also documented these types of patterns. See L. Fagnani and J. Tolbert, The Dependence of Safety Net Hospitals and Health Systems on the Medicare and Medicaid Disproportionate Share Hospital Payment Programs, Pub. no. 351 (New York: Commonwealth Fund, October 1999); and D. Gaskin, J. Hadley, and V. Freeman, "Are Urban Safety-Net Hospitals Losing the Competition for Low-Risk Medicaid Patients?" Institute for Health Care Research and Policy Working Paper no. 98-107 (Washington: IHCRP, October 1999). In fact, Gaskin and colleagues show that the Medicaid maternity patients that safety-net hospitals are losing tend to be low-risk maternity patients, leaving safety-net hospitals with an increased share of high-risk patients.
29. Other studies have also documented these types of patterns. See L. Fagnani and J. Tolbert, The Dependence of Safety Net Hospitals and Health Systems on the Medicare and Medicaid Disproportionate Share Hospital Payment Programs, Pub. no. 351 (New York: Commonwealth Fund, October 1999); and D. Gaskin, J. Hadley, and V. Freeman, "Are Urban Safety-Net Hospitals Losing the Competition for Low-Risk Medicaid Patients?" Institute for Health Care Research and Policy Working Paper no. 98-107 (Washington: IHCRP, October 1999). In fact, Gaskin and colleagues show that the Medicaid maternity patients that safety-net hospitals are losing tend to be low-risk maternity patients, leaving safety-net hospitals with an increased share of high-risk patients.
30. In fact, the increase in total margins for Group 2 hospitals was not statistically significant.
31. To some extent, this reduction could be due to regression to the mean. This is possible because these hospitals were included in the group as a result of a high uncompensated care burden in a single base year. However, these hospitals had much slower growth in nonoperating revenues (data not shown), and, as result, they experienced no change in total margin.
32. It is worth noting why the financial data in Exhibit 3 indicate the seemingly contradictory results that net patient revenue grew at a faster rate than total expenses, yet average total margins fell over the same period. The revenue and expense figures did not start at the same level in 1990, so the percentage changes are not directly comparable. In addition, because these are expressed as average percent changes, they should not translate directly into the absolute change in total margins. Our choice to present the expense and revenue figures as we have was based on our desire to represent the circumstances of the average hospital within each safety-net group, as op-posed to the aggregate experience of each group.
33. G. Bazzoli et al., "A Taxonomy of Healthcare Networks and Systems: Bringing Order Out of Chaos," Health Services Research 33, no. 6 (1999): 1683-1717.
34. A. Davidoff et al., "The Effect of Changing State Health Policy on Hospital Uncompensated Care," Inquiry (Fall 2000): 253-267.
35. Medicare DSH payments also increased, but the relative expenditures on Medicaid DSH are much larger than those on Medicare DSH.
36. T. Coughlin, L. Ku, and J. Kim, Reforming the Medicaid Disproportionate Share Hospital Program in the 1990s, Assessing the New Federalism Discussion Paper no. 26 (Washington: Urban Institute, January 2000).
37. T. Coughlin and L. Ku, "Medicaid Special Disproportionate Share and Other Financing Programs," Health Care Financing Review (Spring 1995): 27-54.
38. T. Coughlin and D. Uska, "State Responses to Changes in Federal Medicaid DSH Policies: Highlights from ANF Study States" (Presented at the Urban Institute and Health Affairs Assessing the New Federalism Conference, Washington, D.C., June 1998).
39. As our analysis suggests, not all hospitals with high market share/high burden are public hospitals. However, BIPA allowed states to increase gross Medicaid DSH payments from 100 percent of uncompensated costs (including shortfalls related to low Medicaid payment rates) to 175 percent for public hospitals, which represent a large share of this safety-net hospital category. Because Medicaid DSH payments are often financed by intergovernmental transfers (IGTs) from public hospitals receiving the payments, and because not all federal payments are received by the hospitals providing the IGT, the net Medicaid DSH payments received by public hospitals may be well below 50 percent of their gross DSH payments.
40. Calculation based on information available at the Health Care Financing Administration (HCFA) Web site,
41. Gaskin et al., "Are Urban Safety-Net Hospitals Losing the Competition for Low-Risk Medicaid Patients?"
42. J. Hadley, S. Zuckerman, and L. Iezzoni, "Financial Pressure and Competition: Changes in Hospital Efficiency and Cost-Shifting Behavior," Medical Care (March 1996): 205-219.