Cuts in Hospital Subsidies Threaten Safety-Net Care

Cuts in Hospital Subsidies Threaten Safety-Net Care By SABRINA TAVERNISE New York Times November 8, 2013 http://www.nytimes.com/2013/11/09/health/cuts-in-hospital-subsidies-threaten-safety-net-care.html?ref=health

Uninsured Patients • SAVANNAH, Ga. — The uninsured pour into Memorial Health hospital here • The waitress with cancer in her voice box who for two years assumed she just had a sore throat. • The unemployed diabetic with a wound stretching the length of her shin. • The construction worker who could no longer breathe on his own after weeks of untreated asthma attacks and had to be put on a respirator.

Double Bind • Many of these patients were expected to gain health coverage under the Affordable Care Act through a major expansion of Medicaid, the medical insurance program for the poor. But after the Supreme Court in 2012 gave states the right to opt out, Georgia, like about half the states, almost all of them Republican-led, refused to broaden the program. • Now, in a perverse twist, many of the poor people who rely on safety-net hospitals like Memorial will be doubly unlucky. A government subsidy, little known outside health policy circles but critical to the hospitals’ survival, is being sharply reduced under the new health law.

Disproportionate Share Hospital Payments • The subsidy, which for years has helped defray the cost of uncompensated and under-compensated care, was cut substantially on the assumption that the hospitals would replace much of the lost income with payments for patients newly covered by Medicaid or private insurance. But now the hospitals in states like Georgia will get neither the new Medicaid patients nor most of the old subsidies, which many say are crucial to the mission of care for the poor. • “We were so thrilled when the law passed, but it has backfired,” said Lindsay Caulfield, senior vice president for planning and marketing at Grady Health in Atlanta, the largest safety-net hospital in Georgia. • It is now facing the loss of nearly half of its roughly $100 million in annual subsidies known as disproportionate share hospital payments.

Safety-Net Hospitals • Traditionally, safety-net hospitals have played a special role in caring for the poor. They make up just 2% of acute care hospitals in the country, but provide about 20% of all uncompensated care, according to Dr. Arthur Kellerman, dean of the F. Edward Hébert School of Medicine in Bethesda, Md. The subsidy was created in the 1980s to help hospitals with large shares of patients who were uninsured or had government insurance that did not hospitals came to depend on it. • A full third of Grady’s patients have no insurance, and, if that does not change, the hospital will have no choice but to cut services, said John M. Haupert, Grady’s chief executive. The hospital’s large outpatient mental health program, which handles 58,000 visits a year and is critical to keeping poor patients with behavioral problems from seeking treatment in the emergency room, would most likely be hit, Mr. Haupert said.

From DMC

The Economics $ AC • Think of the hospital as a price taker. • “Effective” price is the revenue per patient weighted by the fraction that pay it α. • Subsidy would take you closer to paying AC. P0 Subsidy αP0 Quantity

Cuts in Hospital Subsidies Threaten Safety-Net Care