Threatening the Safety Net

The biggest consumer benefit of federal health care reform — adding millions more Americans to insurance rolls — could spell disaster for some public hospitals.

At best, they’ll face an identity crisis, Texas public hospital CEOs and health care economists say, as they’re forced to compete with private doctors and hospitals for newly covered patients. At worst, some of the state’s safety-net hospitals could hemorrhage money and shut their doors altogether.

“Good hospitals could close, not because of bad things they’ve done but because they’re expected to do the impossible,” says Dr. Ron Anderson, president and CEO of Parkland Health and Hospital System, Dallas’ public hospital.

To survive, these experts say, public hospitals will have to start operating more like private institutions — or else dramatically alter their health care delivery systems to cut costs. Both options present a huge challenge. Even in the best-case scenario, public hospitals would face a new level of competition. Newly insured patients, no longer forced to visit public hospitals, would seek treatment in doctors’ offices or private hospitals, which may be closer to home or lack the stigma of a public hospital.

“If patients have greater choice, that’s going to lead to a movement away from the public system,” says Dr. Charles McConnel, a health care economist at UT-Southwestern Medical Center in Dallas. Public hospitals “are going to have to advertise, to plan for admissions and discharges. They’ve got to behave more like the private sector, which is extraordinarily difficult to do.”

Public hospital officials say it’s far too early to know for certain how health care reform will affect their bottom lines. They’re facing a big funding cut: The federal government is reducing subsidies paid to hospitals that provide care to high proportions of indigent and uninsured patients, reasoning that many of those patients will soon have Medicaid or employee-offered health insurance.

Meanwhile, public hospitals will benefit from more federal money for the costly trauma services they provide for patients who can’t pay. And Medicaid reimbursement rates will likely climb to Medicare levels — currently about 30 percent higher. As health care reform expands Medicaid to include up to 2 million more Texans, hospitals with lots of Medicaid patients will get paid better for them.

Meeting a new bottom line

Some public hospitals could add more specialty services, pouring resources into attracting high-dollar patients for revenue-raising procedures like spine and orthopedic surgeries. Others could target cost savings instead, providing more preventative care in low-overhead clinic settings to cut down on indigent hospital care. Parkland Hospital is doing both — building a sparkling new facility that will increase capacity by nearly 40 percent and extending its preventative care reach with 30 health centers and clinics across North Texas.

At University Medical Center Brackenridge in Austin, a public hospital operated by the Seton Family of Hospitals, officials are working to redesign the health care delivery system — focusing on front-end management of chronic diseases to prevent costly hospital admissions and readmissions.

“We have to continue to be attractive to people who have a choice and to be a safety net for people who don’t have a choice,” says Charles Barnett, the Seton system’s president and CEO.

Many big urban public hospitals believe they can pull off the stretch between safety-net hospital and market competitor. What they’ll lose in indigent care subsidies, they could partly make up in increased federal funding for trauma care. But small public hospitals, which don’t have high-level trauma centers — and don’t have the money to build a flashy new wing or attract a high-profile new neurosurgeon — may be unable to ride out the storm. If Medicaid rates are raised roughly 30 percent, those patients will be more attractive to private hospitals and primary care physicians, and are more likely to stray from public hospitals. 

“The hospitals that barely make it even in the best of times — the hospitals that have never been run terribly well — won’t be able to compete,” McConnel says. “I would imagine we’ll find the closing of any number of mid-tier public hospitals.”

Worst-case scenario

But if Medicaid rates don’t rise, that doesn’t mean public hospitals are in the clear. The worst thing that could happen is for Medicaid rates to stay so low that doctors refuse to accept those patients. Today’s Medicaid rates are hardly profit-makers for hospitals. If the state’s growing fleet of Medicaid patients can’t get in to see primary-care doctors and don’t have access to private hospitals, they’ll flood the emergency rooms of public hospitals, overrunning the current system. Parkland’s Anderson said this happened in Massachusetts after that state passed near-universal coverage a few years ago — and that public hospitals there floundered.

“Coverage is not care. We’re looking at a situation where people may go from being uninsured to being underinsured,” Anderson says. “If the hospital is underfunded and overwhelmed with patients, somebody could get hurt.”

Meanwhile, public hospitals that treat the largest number of undocumented immigrants could struggle to stay afloat with the anticipated indigent care cuts (undocumented patients aren’t eligible for Medicaid). They could also face a political backlash and cuts in local funding if they’re seen as providing more “immigrant” — and less “indigent” — care. “There’s certainly the risk someone will say, ‘We’re willing to pay for our poor, but not the poor who come in from Mexico,’” Anderson says.

Hospital officials say what scares them most are the unintended consequences of the legislation — and the reality that lawmakers are so polarized that they wouldn’t be able to act fast to solve a crisis.

“We may make some mistakes, and may not be able to fix them in time, because the parties won’t talk to each other,” Anderson says. “My institution could be harmed, and my patients could be harmed. That’s the part that keeps me up at night.”