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The Effects of Financial Pressures on the Hospital Safety Net. Gloria J. Bazzoli, Ph.D. (VCU) Richard C. Lindrooth, Ph.D. (MUSC) Romana Hasnain-Wynia, Ph.D. (HRET) Ray Kang (HRET). Research supported by the RWJF Health Care Financing and Organization program (#42596). Study Context.
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The Effects of Financial Pressures on the Hospital Safety Net Gloria J. Bazzoli, Ph.D. (VCU) Richard C. Lindrooth, Ph.D. (MUSC) Romana Hasnain-Wynia, Ph.D. (HRET) Ray Kang (HRET) Research supported by the RWJF Health Care Financing and Organization program (#42596).
Study Context • US hospitals provide large amounts of uncompensated care; as reported by Hadley and Holahan (Health Affairs 2/12/03): • $23.6 billion in 2001 • represented 66% of total annual care available to uninsured • In late 1990s and early 2000s, substantial financial pressure existed for the industry: • Medicare margins fell from: 11.7% in 1997 to 5% in 2001 to -1.9% in 2003 (effect of 1997 Balanced Budget Act) • One third of hospitals have negative total margins in 2001 to 2003 (effect of BBA and private sector pressures)
Research Questions • What operational changes did safety net hospitals make to get by in this environment: • to what degree did they cut back on mission (i.e., uncompensated care)? • did they make changes that affected quality of care?
Conceptual Framework • Hoerger (JHE 1991) provides a good foundation for examining these questions: • Modeled non-profit hospitals as maximizing quantity and quality of services subject to realizing a target profit level. • Exogenous shocks from private or public sector affect achievement of target profit. • Reaction: cutback on quantity and quality. • We examine two areas where cutbacks may occur: • Quantity changes: provision of uncompensated care • Quality changes: reductions in nurse staffing levels
Identification of Safety Net Hospitals • Applied the approach developed by Zuckerman et al. (Health Affairs, July/August 2001) • They examined two constructs: • percent of hospital resources devoted to indigent care (% of expenses uncompensated); and • a hospital’s local market share of uncompensated care. • They grouped hospitals by safety net status based on whether they are high or low on the two constructs
Key Financial Pressure Measure • Used similar approach to Hadley et al. (Inquiry 1989) to measure potential profit/loss hospital could incur if it made no operational changes in face of revenue change: FPIi = [(MCPCi,1997 – MRPCi,1998) * MCRADJ i,1997]/ TOTEXP i,1997 • Measured for both Medicare and Medicaid
Study Data • 1995 UC data used to identify safety net hospitals • Created 1996 to 2001 panel of hospitals: • AHA Annual Survey of Hospitals • CMS Medicare cost reports • BHPr Area Resource File • UDS files on federally qualified community health centers • InterStudy HMO data (allocated to service areas) • State reported data on Medicaid managed care • Samples consisted of around 1,000 to 1,600 urban community hospitals with complete data
Empirical Approach • All analyses took advantage of panel data to estimate effects of financial pressure on hospital decision-making. • FPI as measured in prior slide for 1998 interacted with year dummies to assess response over time to initial pressure from 1997 Balanced Budget Act • Interact FPIs with high HMO share (75th percentile of HMO distribution) in the uncompensated care analysis to capture private sector pressure
Changes in Average Hospital UC (measured in 1996 $; millions)
Effect of Medicare and Medicaid Financial Pressure on UC *p<.10 **p<.05 *** p<.01 n.s.= not significant
Figure 1: Trends in Patient Adjusted Admissions and Nurse and Other Employees: 1995-2001 140 120 Adjusted Patient Admission 100 Total FTE RN 80 1995=100 Total FTE LPN 60 40 Total All Nurses 20 0 1995 1996 1997 1998 1999 2000 2001 Year Changes in Adjusted Admission and Staffing Over Time
Effects of Medicare Financial Pressure on Staffing Levels • Non-safety net hospitals that faced greater Medicare financial pressure: • reduced RN staffing per adjusted patient day more so than non-safety net hospitals with low financial pressure. • However, this effect was not apparent in safety net hospitals.
Implications of Findings • Our results suggest that safety net hospitals were more likely to reduce uncompensated care than make decisions that could adversely affect quality (e.g., cut staffing levels) during the study period. • Persistent nursing shortage may have been a factor – safety net hospitals did not want to lose highly trained staff; kept them even at high cost • Also, safety net hospitals may have already had low nurse to patient ratios and did not want to cut further • Safety net hospitals may find it easier to calibrate mission activities to changing margins; making operational decisions that may adversely affect quality can have longer term effects that are hard to erase
Implications of Findings • Some big cuts in public payments loom on the horizon; FY 2007 presidential budget called for: • $36 billion in hospital Medicare payment cuts over 5 years • $35 billion reduction in federal Medicaid support over 10 years • Overall, our findings suggest that these changes might further limit availability of hospital safety net care for those in need.