Nancy M. Kane, Sara J. Singer, Ph.D., Jonathan R. Clark, Ph.D., Kristof Eeckloo, Ph.D., and Melissa Valentine, M.P.A.
N. M. Kane, S. J. Singer, J. R. Clark et al., "Strained Local and State Government Finances Among Current Realities That Threaten Public Hospitals' Profitability," Health Affairs, August 2012 31(8): 1680–89.
Prior the 2008–09 economic recession, safety-net hospitals that were directly governed by elected officials and in highly competitive markets had significantly higher operating margins than more politically independent safety-net hospitals. Because their better performance was tied to government subsidies rather than superior financial controls, these hospitals will face significant financial reversals if they fail to change their business practices before the Affordable Care Act's scheduled reduction in subsidies takes effect and a weak economy forces further cutbacks.
Safety-net hospitals play a vital role in serving uninsured and low-income populations, especially in large urban communities, but little is known about the factors that influence their financial viability. To identify these factors, the authors of this Commonwealth Fund–supported study compared the financial performance of 150 safety-net hospitals, examining governance type, financial performance, and market concentration, among other variables. To further clarify their findings, the authors conducted site visits at nine hospitals.
To overcome declining government subsidies, safety-net hospitals governed by elected politicians must focus on cost control, quality improvement, and services that attract insured patients. Such efforts will be important to ensure that the 23 million people who will be left out of universal coverage schemes—including illegal immigrants, people with chronic psychological illnesses, and those whose incomes are not high enough to afford private insurance—continue to receive the range of health care and specialized services, like transportation and language translation, that these hospitals provide.
The authors examined five years’ worth of financial data from 150 urban safety-net hospitals throughout the United States that met at least one of the following three criteria: a threshold percentage of Medicaid discharges, a threshold percentage of minority discharges, or 2007 membership in the National Association of Public Hospitals and Health Systems. They conducted site visits and interviewed board members, senior executives, managers, and other staff at nine hospitals.
Safety-net hospitals that currently rely on politically negotiated funding must adapt to increasing fiscal austerity and intensified competition by revamping their business strategies.