Healthcare Without a Net

On Wednesday, the U.S. House of Representatives again failed to garner enough votes to overturn President Bush’s veto of a $35 billion expansion of SCHIP, legislation that would have enabled states to extend coverage to almost 4 million uninsured children over the next five years. The bill’s current incarnation was criticized by the Bush Administration and some Republicans for unnecessarily drawing millions of children into a government-subsidized insurance program, allowing benefits for some adults, increasing the federal tobacco tax to $1 per pack, and creating loopholes that might have permitted illegal immigrants access to government assistance for medical care.

The tooth and nail battle over SCHIP is emblematic of not only the complex state of the beleaguered U.S. healthcare system, but also of the diverse experiences and opinions of American citizens regarding the tenuous balance between their own healthcare requirements, the needs of others, and the fundamental question of who pays for it all. What has become clear, particularly in the shadow of an presidential election year is that Americans as a whole—the privately insured, those who receive Medicare and Medicaid support, and the 47 million people who lack insurance—increasingly believe that the status quo isn’t working. In a Wall Street Journal/NBC News poll of more than 1000 adults this week, 34 percent said concern over healthcare was their first or second priority.

CMS Regulations Exacerbate Crisis for Vulnerable Populations

In the months leading up to the first SCHIP veto, the Centers for Medicare and Medicaid Services (CMS) issued two regulations currently under a one-year Congressional moratorium that, unless amended will take effect in 2009. The two regulations will strip billions of dollars in federal funding from public hospitals and safety-net providers that already face a dearth of financial support.

The first severely limits reimbursements to government-operated hospitals, narrows the definition of “public hospitals,” and restricts state Medicaid financing. The effect of this rule change, if the current moratorium is not extended, will hold back almost $19 million in Medicaid reimbursements from San Juan County, New Mexico, in fiscal year 2009, for example. Hundreds of state and county governments across the country will find themselves in similar circumstances, forced to compensate locally for shortfalls or simply try to do more with less.

The second regulation will eliminate federal Medicaid support for graduate medical education (GME) by no longer recognizing GME as medical assistance. The rule will eliminate more than $2 billion in federal monies from a program that many safety-net providers depend upon to meet their staffing needs amid tight budgetary constraints.

America’s Shrinking Safety-Net

According to the National Association of Public Hospitals and Health Systems (NAPH), safety-net hospitals are entities that “provide a significant level of care to low-income, uninsured, and vulnerable populations. Safety-net hospitals are not necessarily distinguished from other providers by ownership – some are publicly owned and operated by local or state governments and some are non-profit. Rather, they are distinguished by their commitment to provide access to care for people with limited or no access to health care due to their financial circumstances, insurance status, or health condition.”

Several other minimum criteria are utilized by the federal government to officially designate safety-net status, but an estimated 700 to 800 hospitals in the U.S. meet further technical definition of a Medicaid disproportionate share hospital (DSH), although more than half of all hospitals in the country receive some Medicaid DSH payments. Today there are roughly 1,300 public hospitals nationwide, but according to NAPH President Larry Gage in a recent New York Times article, there were more than 1,600 such facilities in operation only 15 years ago, with notable closures in major metropolitan areas from Los Angeles to Milwaukee to Washington, DC. Those public hospitals that persist as safety-net providers must contend with grim economic realities in the face of federal Medicaid policy changes such as those outlined above.

X-Ray of a Grave Predicament: Grady Memorial Hospital

Grady Memorial Hospital in Atlanta, Georgia, is one of the largest safety-net hospitals in the country. It is also a major teaching hospital, training 25 percent of Georgia doctors. But the financial burden of Grady’s mission as a charity and emergency care facility has not been adequately subsidized by county or state funding; inexpert management has consistently failed to execute needed budgetary cuts, and federal Medicaid reimbursements have not come close to keeping pace with costs. Staring down a likely $53 million budget deficit this year and in serious danger of losing its accreditation, Grady, like many other providers of its kind, is in a world of hurt.

The New York Times article referenced above clearly portrays the state of affairs at Grady that threatens to bring about its closure:

• One-third of the hospital’s patients are uninsured, many of them immigrants;

• Another third are Medicaid beneficiaries;

• Only eight percent of inpatients have private insurance;

• The hospital serves more that 850,000 outpatient and 30,000 inpatient visits per year;

• Grady is the only Level 1 trauma center in the northern half of the state;

• The hospital provides Atlanta’s only emergency ambulance services, but a full one-third of those ambulances should ideally be decommissioned for want of repair;

• Grady’s emergency department (ED), which admits on average more than 300 patients per day, has no electronic patient tracking system, and crowding has increased wait times for moving patients from the ED to intensive care to as much as 24 hours.

This litany of holes in the safety-net is neither exhaustive of Grady’s problems nor unique to this facility; Martin Luther King, Jr.-Harbor Hospital in Los Angeles County was forced to close within the last year.

Scar Tissue: The Impact of Safety-Net Closures

Last November, Grady’s politically appointed board acquiesced to dissolve itself and form a nonprofit corporation to manage its operations, hoping to attract multi-million dollar private donations aimed to financially resuscitate the hospital. But the running fiscal deficits for 10 of the last 11 years and the impact of restricted federal Medicaid policies mean that Grady’s survival is anything but assured.

If the hospital were to close, or even dramatically reduce or eliminate some services, other hospitals in proximity would be inundated with under- and uninsured patients. For comparison, Lutheran HealthCare System in Brooklyn, New York, which serves a patient base similar to Grady’s in Atlanta, provides care to a population of almost 350,000 consumers that would not otherwise receive services.

Were Grady to shut its doors, a range of effects would likely be felt in the Atlanta metropolitan area and surrounding counties, perhaps reaching as far as across the state.

Many patients, out of necessity, would be forced to seek care at facilities further from their homes and workplaces. For many low-income patients, a compulsory change in venue would represent a strain on both their time and money.

Statistically, under- and uninsured patient populations tend to overuse EDs for primary care. A 2008 study conducted by Cambridge Health Alliance and Harvard Medical School found that ED wait times increased 36 percent—from a median of 22 to 30 minutes—between 1997 and 2004. The study also cited external data showing that total U.S. visits to EDs between 1994 and 2004 increased 26 percent, while the number of EDs decreased by 12 percent. A stream of new ED patients to surrounding hospitals would dilute the quality of care for both the migrating population and the existing patient base, straining hospital resources.

Other patients—out of a different set of necessities, ignorance, or fear—may forego or postpone basic medical care. In the worst case scenario, such gambles might increase mortality risk. Short of that, medical conditions aggravated over time are likely to cost patients more to treat down the line. The response from hospitals, based on a new patient mix already unable to pay for private insurance, will have to be an increase in charity care allocations or an upswing in bad debt will almost certainly follow. Both healthcare creditors and collection agencies are well aware that the most vulnerable populations are unlikely to meet their debt obligations. To offset expenses associated with bad debt, hospitals may have to increase charges to insurers, which in turn will pass those increases on to consumers through higher premiums and greater patient portion responsibility for the cost of care. Some of those consumers, burdened by higher medical expenses and a stagnant economy, will ultimately find themselves in a collections stream, even as they count themselves among the insured in America.

The potential impact of a Grady closure—or other safety-net providers like it—might very well prove injurious to doctors and nurses on the front lines, hospital creditors that finance their services, healthcare consumers from various patient demographics, and ARM companies that are employed by the healthcare industry as a last line of defense against uncollected receivables. The degradation of America’s safety-net may wind up ensnaring more groups than it was ever designed to save.

As an analyst at Kaulkin Media, Michael conducts custom research projects and writes publications focusing on the healthcare sector of the accounts receivable management industry. Contact Michael by email or at 240-499-3836.