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No Medicaid Expansion? Many Safety-Net Hospitals Still Doing Fine

But Affordable Care Act will cut funding next year

Hospitals that treat many poor and uninsured patients were expected to face tough financial times in states that did not expand Medicaid under the Patient Protection and Affordable Care Act (PPACA). That’s because they would get less Medicare and Medicaid funding under the PPACA, while still having to provide high levels of charity care.

But in some of the largest states that did not expand Medicaid, many safety-net hospitals fared pretty well last year — even better than in 2013 in many cases, according to a report from Kaiser Health News. Kaiser looked at the performance of about a dozen such hospitals in Florida, Texas, Georgia, Tennessee, South Carolina, Virginia, and Kansas.

An improving economy was the single biggest reason shared by all of the strongly performing hospitals because it helped reduce the number of patients who couldn’t pay their bills and increased local property and sales tax revenues earmarked for publicly supported hospitals, Kaiser found.

Another factor for some hospitals was the increase in insured patients who bought coverage through the PPACA’s insurance exchanges. For instance, Fort Lauderdale, Florida-based Broward Health saw a 30% drop in charity care, which officials attributed to seeing more insured patients.

Still, the biggest fiscal challenges lie just ahead — with significant Medicaid funding cuts starting late next year under the PPACA. The Act’s drafters anticipated the number of uninsured Americans to decrease dramatically, in part because they expected a nationwide expansion of Medicaid. Therefore, beginning in October 2016, the Act calls for cuts to Medicaid funding for hospitals that typically see a disproportionate share of the poor.

Safety-net hospitals, many of which are supported by local or county taxpayers, often struggle financially because they see a high proportion of patients who are either uninsured or enrolled in Medicaid, the state-and-federal program that pays less money than Medicare or private insurers. These hospitals face added pressure from providing high-cost and traditionally money-losing services, such as trauma and burn care. They also have the expense of training doctors.

During the past decade, two of the nation’s largest public safety-net hospitals — Grady Memorial Hospital in Atlanta and Jackson Memorial Health System in Miami — were on the verge of financial collapse but recovered after major management changes and increased public support.

Last year, the county-owned Jackson finished its second consecutive year with about a $51 million surplus on about $1 billion in revenue, in part as a result of increased county sales-tax revenue going to the health system and tighter expense management.

Grady’s profit increased to nearly $30 million through November 2014, up from $17 million for the same period in 2013.

Several other safety-net facilities in states that did not expand Medicaid had profits in 2014, according to financial reports, including:

  • Broward Health, which runs four hospitals, saw $69 million in profit in the 2014 fiscal year that ended June 30, compared with $59 million a year earlier, on about $1 billion in revenue. That included support from local taxpayers.
  • Orlando Health, a six-hospital system in central Florida, saw its profit grow to $161 million in the fiscal year that ended in September 2014, up from $32 million the year before, on about $2 billion in revenue.
  • Tampa General posted a $49 million profit last year, up from $31 million the year before, on $1 billion in operating revenue. Its operating margin was 4.5%.
  • Chattanooga, Tennessee-based Erlanger Health posted a $20 million profit for the 6 months that ended December 31, 2014, on revenue of $336 million, after factoring in local tax support, compared with losing $1.5 million during the same period a year earlier.
  • Greenville Health System in South Carolina made a $63 million profit in the fiscal year that ended September 30, 2014, down slightly from $80 million the prior year. The system had about $1.8 billion in revenues.

Not all safety-net hospitals did well last year. County-run Harris Health System in Houston is facing a $14 million budget shortfall and recently announced plans to lay off 108 workers. Officials blame Texas’ decision not to expand Medicaid and decreased payments from other federal programs. Nearly two-thirds of Harris’ patients are uninsured — a far higher percentage than at most safety-net hospitals.

Parkland Health and Hospital System, which is supported by Dallas County property taxes, managed to finish in the black but saw its profits decline from $43.4 million in 2013 to $1.4 million in 2014.

Meanwhile, safety-net hospitals in Florida fear what will happen after June 30 when $2 billion in federal funding expires under an agreement between the state and the federal government. Under such agreements, the federal government supplied billions of dollars in special Medicaid dollars to certain states, including Florida, Texas, and California, to support hospitals with large numbers of Medicaid and uninsured patients.

“Without those dollars, we have an unsound system,” said Tony Carvalho, president of the Safety Net Hospital Alliance of Florida.

While Miami-based Jackson Health is financially healthy now, Chief Financial Officer Mark Knight worries about the end of the federal waiver funding in June, which contributed $160 million to his budget this year. “We could not continue to serve and maintain current capacity without that money,” he said.

A recent report from the consulting firm Alvarez & Marsal predicted that the nonprofits would face major financial threats as a result of PPACA-mandated funding cuts, particularly in states that do not expand Medicaid. “Safety-net hospitals are now operating in the untenable crosshairs of economic distress and health care reform,” the report said.

Source: Kaiser Health News; March 4, 2015.


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