Strategies in 4 Safety-Net Hospitals to Adapt to the ACA

Introduction

Safety-net hospitals have long played an essential role in the US health care system. They are a major source of care for the nation’s most medically vulnerable, including Medicaid beneficiaries and the uninsured, and provide services that other hospitals generally do not offer, such as trauma and burn care. In addition, many of these hospitals serve as training facilities for medical and nursing students. Safety-net hospitals face more challenges compared to other hospitals because of limited revenue streams, due to a reliance on uncompensated care financing pools and a poor payer mix, often complex governance and leadership structures, and high needs for infrastructure (IT) investments.

The ACA makes fundamental changes to the health care landscape primarily in terms of coverage and financing.  First, the ACA extends coverage to many uninsured through an expansion of Medicaid for low-income adults and through premium tax credits to help people purchase insurance through new Health Insurance Marketplaces for individuals with moderate incomes. With the June 2012 Supreme Court ruling on the ACA, the Medicaid expansion became optional for states. As of May 2014, 27 states, including the District of Columbia, are implementing the Medicaid expansion and 24 states are not moving forward at this time. In states not implementing the Medicaid expansion, many adults will remain uninsured. In terms of financing, new coverage through Medicaid and the Health Insurance Marketplaces could mean additional revenues for hospitals and other providers, but the ACA also significantly reduces Medicare and Medicaid disproportionate share hospital (DSH) payments, which often represent a major revenue source for safety-net hospitals. In addition, state and local funding sources for uncompensated care could decline with reform. Finally, the ACA emphasizes value-driven care, which will challenge all hospitals to deliver quality care in a cost-effective way.

As a result of changes under the ACA, safety-net hospitals will need to make major changes to the way they do business in order to compete. Under reform, increases in coverage will mean that safety-net hospitals will face increases in patient demand from those newly insured through Medicaid and the Health Insurance Marketplaces. At the same time, they will need to actively compete with private hospitals for those newly insured patients, a sea change for many safety-net hospitals’ organizational culture as historically they have focused on caring for the uninsured and underinsured. In states that are not implementing the Medicaid expansion, safety-net hospitals will continue to serve a high number of uninsured patients, but could also see reductions in financing for uncompensated care. This is particularly true for safety-net hospitals that serve large shares of undocumented immigrants who remain ineligible for Medicaid or tax credits to purchase coverage in the new Marketplaces.

Building on earlier work,¹ this report examines four safety-net hospitals to learn how they were adapting to changes in the ACA and what major challenges the hospitals will likely face as they enter the post-reform world. The four hospitals are Cook County Health and Hospitals System (Cook County HHS) in Chicago, Illinois; Harris Health System (Harris Health) in Houston, Texas; Santa Clara Valley Medical Center (SCVMC) in San Jose, California; and University Medical Center of Southern Nevada (UMC) in Las Vegas, Nevada. Each of these hospitals exists within broader health systems, which often includes an extensive outpatient infrastructure. Using a semi-structured protocol, site visits and interviews were conducted between June and September 2013 with key hospital management, including the chief executive officers, chief technology officers, chief financial officers, and chief medical officers. We also interviewed local health care stakeholders.