May 20, 2021

'The gap is not sustainable': Why safety-net hospitals especially struggled amid Covid-19

Daily Briefing

    Amid the Covid-19 pandemic, hospitals that serve uninsured patients or patients covered through Medicaid were hard hit financially, with some "barely making ends meet"—even as hospitals that typically serve patients with private insurance recorded stronger financial performance, according to an investigation by NPR and the PBS series Frontline.

    How to advance equity for your workforce, patients, and community

    Background

    Hospitals that have traditionally served low-income patient populations who are either uninsured or insured through Medicaid—known as "safety-net hospitals"—are largely funded by taxpayers at the county, state, and federal level, in part through Medicaid and Medicare.

    Those programs typically reimburse hospitals at rates lower than those paid by private insurers, NPR reports. In fact, research indicates that the disparity between what private insurance and Medicare pays for the same hospital services has grown substantially, from about $1.50 for every $1 Medicare paid 15 years ago, to nearly $2.50 for every $1 Medicare paid in 2018—and Medicaid, according to NPR, pays "even less."

    As a result, over the past 20 years, for-profit and nonprofit hospitals with patient populations primarily covered by private insurance have been able to generate revenue significantly above costs—while safety-net hospitals have struggled.

    How the pandemic exacerbated the gap

    According to the NPR/Frontline investigation, hospitals across the board were hard hit at the start of the pandemic, as providers tackled an unknown pathogen, facilities struggled to access personal protective equipment (PPE), and scheduled procedures—long a major revenue source for hospitals—were suspended across the country.

    Complicating matters further, the federal government in its initial batch of $46 billion in relief funds for hospitals allocated that money based on each hospital's 2019 revenue, meaning much of that initial funding went to hospitals that had done well financially in 2019, NPR reports.

    In comparison, most safety-net hospitals struggled, the investigation found. In fact, Moody's in October 2020 found that urban counties that during the pandemic operated a public hospital—many of which serve as safety-net hospitals—now carried "operational risk" for their government budgets, and costs stemming from PPE, staff, and equipment were resulting in "operating losses."

    According to Moody's, safety-net health systems in Chicago, Miami, and Los Angeles had less than two months' cash on hand, compared with the standard six or seven months' cash.

    At the same time, the pandemic disproportionately affected the low-income patient populations whom these hospitals have traditionally cared for—meaning that as these hospitals struggled financially, they began taking on a greater share of the Covid-19 patient burden, according to the investigation.

    In fact, according to NPR and the University of Minnesota's Covid-19 Hospitalization Tracking Project, hospitals that belong to American's Essential Hospitals—a trade group for safety-net hospitals—had 10% more patients in beds than other hospitals.

    'This gap is not sustainable'

    While the federal government eventually established several Covid-19 relief funding programs aimed at safety-net hospitals, critics say it is still unclear how targeted that funding has been. In fact, according to NPR, industry experts believe some safety-net hospitals will have to either close or be sold to private investors to survive. 

    "I think we are on a precipice," Bruce Siegel, president of America's Essential Hospitals, said. "Even before the pandemic, many of these [safety-net] hospitals were losing money. These hospitals did not get enough federal support, and I think all these trends we've seen of Medicaid not paying enough, the pandemic is only going to make that worse. It's been a terrible year."

    Ge Bai, an associate professor of accounting at Johns Hopkins Carey Business School, echoed those sentiments, saying Covid-19 is simply making an already growing trend grow that much faster. "Covid expands the financial disparity," she said. "For the past 15 years, the financial disparity across hospitals (has been) expanding. So the richer ones become richer, and the poorer ones become poorer. This gap is not sustainable" (Sullivan/Jingnan, NPR, 5/18).

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