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Safety-Net Hospitals Adapt to Difficult Times by Investing in Health IT and Integrated Care

By Rebecca Adams, CQ HealthBeat Associate Editor

August 7, 2012 -- Safety net hospitals face fiscal challenges that will force them to change the way they do business, according to a pair of studies in the journal Health Affairs.

One report, led by Harvard University researchers, examined the characteristics of 150 safety net hospitals from 2003 to 2007. The researchers were surprised by their finding that the hospitals that were directly overseen by politicians and those in highly competitive markets were the most profitable.

Another study, led by Urban Institute fellows, examined the way that five safety net hospitals are coping with changes in the health care system.

The first study found that even though public hospitals have lower profit margins than private for-profit institutions, some of the most financially secure safety net hospitals were those governed by elected officials. That was partly because the hospitals were supported by state, local and federal governments. But that aid is more difficult to find when government budgets are strained, as is the case now.

Separately, safety-net hospitals face Medicare and Medicaid cuts stemming from the 2010 health care law (PL 111-148, PL 111-152), including a 75 percent reduction in Medicare disproportionate share payments in 2014.

"Safety-net hospitals face a new market reality," said the study, which was written by Harvard School of Public Health professor Nancy Kane and others. "The economic downturn, slow recovery, and politics of deficit reduction erode the ability of local governments to support the safety net. Safety net hospitals that have not focused on cost control, quality improvement or services that attract insured patients will face increasing financial and competitive pressure."

The analysis concluded that "the adverse consequences of public hospital failure may be serious and long lasting." While the study outlined the problems safety net hospitals face, it did not offer specific solutions.

The other study examined how five hospitals were preparing for the changes. Between September 2010 and January 2011, the authors visited five hospitals—Bellevue Hospital Center in New York City; Denver Health Medical Center; Parkland Health and Hospital System in Dallas; San Francisco General Hospital; and Virginia Commonwealth University Health System in Richmond. The authors wrote that the hospitals in the study were selected after a review of financial data from the National Association of Public Hospitals and Health Systems.

Officials with the hospitals reported that health information technology and integrated systems of care improved their ability to withstand lower levels of government funding. Integrated care gave the hospitals increased purchasing power, the authors said.

The study said that Denver Health, Bellevue, and Parkland also have benefitted from implementing variations of a strategy based on the Toyota production system known as "lean performance improvement." The technique seeks to eliminate the use of resources for any goal that does not clearly create value for customers.

At Virginia Commonwealth, the hospital invested in specialized beds to reduce bedsores, decreasing the length of hospital stays.

"The study hospitals' preparations for reform include improving the efficiency and quality of care delivery; investing in the systems, staffing, and physical environment needed to retain current patients and attract newly insured patients; and laying the groundwork for accountable care organizations and new payment systems," said the study's authors.

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