Editor’s note: This was originally published on the Health Affairs Blog on June 22, 2020.
In the past several months, the COVID-19 pandemic has taken a tremendous human toll measured in hospitalizations and deaths, and a global financial toll measured in millions of businesses closed and rising unemployment. In the US, the devastation is particularly acute in low-income communities and among people of color. Safety-net hospitals serving these communities are suffering, too. Many are initiating layoffs and could shut their doors permanently. We saw the painful consequences for patients, health care workers, and the surrounding community when Hahnemann Hospital, a century-old, safety-net hospital in the heart of Philadelphia, closed abruptly in 2019. In this post, we warn against impending waves of morbidity from hospital closures and propose a comprehensive plan to protect vulnerable safety-net facilities.
Safety-Net Hospitals Are Financially Vulnerable
The COVID-19 pandemic has wreaked financial havoc on US hospitals. Ordinarily, surgeries and elective procedures such as echocardiograms and hip replacements are a major source of hospital revenue. In response to the pandemic, hospitals have halted most of these procedures. Social distancing and public fear have further reduced demand for hospital services. Consequently, according to a recent Advisory Board estimate, a typical 1,000-bed hospital system with a moderate surge in COVID-19 patients is expected to lose approximately 50 percent of its quarterly revenue. Some of the nation’s most prestigious hospitals, including Harvard-affiliated Beth Israel Deaconess, Stanford, and the Mayo Clinic, have already furloughed workers and cut clinician pay. Those well-endowed institutions most likely will survive. However, survival is much less certain for safety-net hospitals such as Einstein Medical Center in North Philadelphia, which on April 14 revealed a $70 million budget shortfall and a plan to furlough staff. Einstein is located in one of the poorest areas of Philadelphia, which has the highest poverty rate among the 10 largest cities in the US.
Safety-net hospitals often have razor-thin financial margins. Compared to other hospitals, they care for a larger share of patients who are uninsured or covered by Medicaid, which reimburses at far lower rates than private insurance. In recent years, rural and safety-net hospitals have been closing with alarming frequency.
Safety-Net Hospital Closures Have Devastating Effects On Communities
An abrupt hospital closure profoundly impacts its surrounding neighborhood and health care workforce. Like Einstein, Hahnemann served some of the most disadvantaged patients in Philadelphia. Half of Hahnemann’s admissions were Medicaid beneficiaries, and two-thirds were black or Hispanic. As a level 1 trauma center located adjacent to a major highway, Hahnemann’s emergency department had nearly 57,000 visits in 2018. The sudden closure in the summer of 2019, just as the city braced for a dangerous heat wave, led to emergency department backlogs in other local hospitals. Countless surgeries and outpatient visits were cancelled. Tens of thousands of patients were burdened with the challenge of finding new health care institutions. Many patients lost easy access to their medical records and to their long-time physicians. More than 500 medical residents had to find new hospitals to finish their training. Luckily, worst-case scenarios were likely averted because at the time other Philadelphia hospitals had capacity to accept Hahnemann’s patients and hire some of its staff. For example, Jefferson University Hospital provided emergency admitting privileges to Hahnemann obstetricians when the hospital closed, preserving continuity of care for patients who were pregnant. The capacity to absorb large hospital closures is now under threat, especially in rural areas and other locations where neighboring hospital capacity is limited.
Safety-Net Hospitals Soon Will Face A Wave Of New Challenges
In the age of COVID-19, hospital closures and reductions in medical services will disproportionately harm disadvantaged populations and weaken the nation’s ability to combat public health challenges, which are just around the corner, with additional waves of COVID-19 infection anticipated for later this year. Simultaneously, health systems must be prepared for an influx of patients who deferred medical care to avoid COVID-19 exposure. Hospital leaders should anticipate a surge in complications of cardiovascular disease, diabetes, cancer, infection, mental illness, and other urgent health conditions. Rampant unemployment will increase the number of uninsured or underinsured patients. Many patients will also suffer the consequences of widespread closures of primary care practices. And patients may encounter a workforce of doctors, nurses, and administrators demoralized by salary cuts, layoffs, and uncertainty over their hospitals’ future outlook.
To Save Safety-Net Hospitals, A Comprehensive Federal Strategy Is Needed
Hahnemann’s closure is a cautionary tale about the urgent need to mitigate the risks of financial instability for safety-net hospitals across the country. A multifaceted approach will be required to save these hospitals from closure while the COVID-19 pandemic continues. First, although the latest stimulus legislation directed federal support to health systems already in dire straits, experts contend that the funding provided is likely to be insufficient to sustain hospitals through this crisis. While the total funding needs over the entire pandemic are unclear, initial estimates suggest that federal payments for treating the uninsured could consume up to 40 percent of total federal stimulus funding allocated to hospitals.
The plan to distribute funds based on hospitals’ historic net revenue from Medicare and other payers could disadvantage safety-net hospitals with large Medicaid-covered patient populations, as Medicaid reimburses at lower rates than Medicare. Based on these factors and the American Hospital Association’s estimates for March through June 2020, we think that US hospitals may require funding of up to two times what is currently appropriated.
The next rounds of congressional stimulus funding should prioritize assistance to safety-net hospitals and hospitals located in rural areas, where closures are especially problematic. This approach could take several different forms. For instance, stimulus legislation could include incentives such as bonus payments for hospitals providing care to low-income and disadvantaged patients. A simple allocation could target funds to hospitals that qualify for Medicaid disproportionate-share hospital (DSH) payments. Alternatively, the government could use hospital census data to more equitably distribute payments to facilities that primarily treat uninsured and Medicaid patients (and not Medicare patients). These facilities could be identified based on definitions of “safety-net hospital” that incorporate data on hospitals’ bad debt or uncompensated care; such data are publicly available in the annual cost reports that Medicare-certified hospitals submit to the Centers for Medicare and Medicaid Services (CMS). In addition, the allocation formula should reflect national data on emergency services use and eligibility for the 340B program.
Federal agencies such as the Centers for Disease Control and Prevention (CDC) should develop transparent, data-driven guidance on how to safely and responsibly re-open hospitals for semi-urgent and more profitable elective care, especially areas with a low COVID-19 incidence. Hospital re-opening plans should balance safety considerations to limit the virus’ spread with hospitals’ need to generate additional revenue by resuming higher-profit elective procedures. Official guidance from these agencies may inspire confidence in a public that may still be wary of going to the hospital.
Reducing regulatory burdens also could bolster provider revenue. For instance, Medicare recently relaxed telehealth regulations to make it easier for providers to bill for these services. Prior to COVID-19, CMS required a visual component to telehealth, even though many underserved patients cannot readily access this technology. Recently, CMS removed the visual requirement from telehealth billing, allowing providers to receive full payments for audio-only encounters. CMS has also implemented short-term delays for hospital quality reporting programs and has relaxed many hospital regulations, including medical record keeping, cost reporting, use review, and value-based purchasing programs. CMS should extend these changes and postpone implementation of Medicaid Fiscal Accountability Regulation (MFAR) and other Medicaid-related requirements so that safety-net hospitals can focus on an orderly reopening and prepare for potential new outbreaks of COVID-19. Even when the pandemic subsides, CMS should be prepared to extend leniency with regulation and value-based purchasing programs as hospitals attempt to recover financially.
Federal efforts could include loan forgiveness to incentivize new clinicians to accept positions in safety-net hospitals, where working conditions may be more stressful than in private institutions. Alleviating medical student and resident debt in exchange for working several years in a safety-net hospital would bolster gaps in the workforce. Because safety-net hospitals and affiliated clinics are more likely to accept Medicaid, this policy change ultimately could increase the number of physicians accepting new Medicaid patients.
Expanding Coverage Options
As job losses cause millions of Americans to lose health coverage, increases in the cost of uncompensated care will add to the financial pressures facing safety-net hospitals. While some states have provided unemployed individuals with a much-needed coverage option by creating special enrollment periods in their Affordable Care Act (ACA) Marketplaces, the Trump administration has opted not to take that approach in the federally facilitated ACA Marketplace used by a majority of states. Marketplace premium tax credits and cost-sharing subsidies would enable eligible populations to obtain affordable coverage. By helping to limit growth in the number of uninsured patients unable to pay for their care, this solution could help preserve financial viability of safety-net hospitals.
When A Safety-Net Hospital Cannot Be Saved, Public- And Private-Sector Solutions Are Needed To Control The Damage
State And Local Initiatives
When a safety-net hospital’s rescue is impossible, the focus should shift to controlling the damage. Despite public and legal appeals from organizations and state and local officials, the Hahnemann closure occurred rapidly, thus creating uncertainty and disrupting the lives of thousands of employees and patients. To protect low-income and disadvantaged communities, state and local governments should consider enacting policies to mitigate the effects of safety-net hospital closures. These policies should specify hospitals’ responsibility to inform and involve the public and surrounding health care systems in planning and outreach activities that facilitate safe transitions of care.
Especially in rural areas, a hospital that eliminates some services but continues to provide others may remain a valuable resource. For example, a hospital may close its emergency department and then emerge from bankruptcy to maintain some ambulatory surgical services. State and federal grants to safety-net hospitals facing bankruptcy could enable such transitions to create smaller, more financially viable facilities.
Barriers to medical record access should not add to patient burden when safety-net hospitals close. Software companies that license, distribute, and support electronic medical records should help develop simple, affordable processes for patients to access and transfer their information. These companies should work with public- and private-sector decision makers as needed to streamline rules governing these processes.
Given the many unpredictable repercussions of hospital closure, local stakeholders could mitigate public health damages through a variety of voluntary initiatives. Corporations, regional insurers, and local philanthropists could launch fundraising campaigns to shore up the fragile budgets of financially hard-hit hospitals. If we lose another safety-net hospital in Philadelphia, large health systems such as the Hospital of The University of Pennsylvania, Thomas Jefferson University Hospital, and Temple University Hospital could support transitions of care and the care of the uninsured with direct outreach, satellite clinics, and expedited appointments. Clinicians have a duty to take extra efforts to help low-income, disadvantaged patients transition their care.
Supporting Safety-Net Hospitals Now And In The Future
Federal, state, and local leaders need to recognize the devastating damage that closure of a safety-net hospital would have during the COVID-19 pandemic. Safety-net hospitals are on the front lines of COVID-19 treatment and public health prevention efforts. They are also major employers in their communities. Even before COVID-19, many safety-net health systems were financially at risk due to their role in serving underserved, Medicaid, and uninsured patients. Future payment reform should focus on refining the algorithms used to target funding to facilities that provide essential care for vulnerable populations. Without these changes, safety-net hospitals that survive the COVID-19 pandemic will remain highly susceptible to financial crises.
Hahnemann Hospital closed at a time when surrounding hospital systems could partially absorb the fallout. Now, the COVID-19 pandemic has taxed our health care system to a point that other safety-net hospitals could close under far worse circumstances. Without a thoughtful and comprehensive strategy to protect safety-net hospitals, the people whom they employ and the vulnerable patients they serve will bear the brunt of COVID-19’s next wave.
Dr. Reese’s efforts were supported by National Institutes of Health (NIH) grant K24-AI146137, Dr. Lin was supported by NIH grant K08-DK118213, and Dr. Harhay was supported by NIH grants K23-DK105207 and R01-DK124388. The content is solely the responsibility of the authors and does not necessarily represent the official views of the NIH.