Caught in the Competitive Crossfire: Safety-Net Providers Balance Margin and Mission in a Profit-Driven Health Care Market

Health Affairs Article: Safety Net Providers Adopt Strategies to Attract Higher-Paying Patients

News Release
Aug. 12, 2008

FURTHER INFORMATION, CONTACT:
Alwyn Cassil (202) 264-3484 or acassil@hschange.org

WASHINGTON, DC—As private physicians and hospitals shed unprofitable patients and services, safety net providers are balancing their mission to serve the needy with steps to attract higher-paying patients to shore up their margins, according to a study by the Center for Studying Health System Change (HSC) published today as a Web Exclusive in the journal Health Affairs.

To maintain financial viability, some safety-net providers—the patchwork of hospitals, community health centers (CHCs) and free clinics that either have an explicit mission to serve low-income and uninsured patients or are widely recognized as playing that role in their communities—are trying to limit exposure to uncompensated care and adopting such private-sector strategies as renovating and expanding facilities and focusing on lucrative specialty care to attract higher-paying privately insured and Medicare patients, according to the study funded by the Robert Wood Johnson Foundation.

"Safety-net providers really are caught in the competitive crossfire of an increasingly profit-driven health care marketplace—they have to maintain their margins to meet their mission of providing care regardless of patients’ ability to pay, but some of the steps they are taking to maintain their margins can threaten their mission," said HSC Senior Fellow Peter J. Cunningham, Ph.D., lead author of the study with HSC consulting researchers Gloria Bazzoli, Ph.D., of Virginia Commonwealth University, and Aaron Katz, C.P.H., of the University of Washington.

The Health Affairs article, titled "Caught in the Competitive Crossfire: Safety-Net Providers Balance Margin and Mission in a Profit-Driven Health Care Market," is based on HSC’s 2007 site visits to 12 nationally representative communities—Boston; Cleveland; Greenville, S.C.; Indianapolis; Lansing, Mich.; Little Rock, Ark.; Miami; northern New Jersey; Orange County, Calif.; Phoenix; Seattle; and Syracuse, N.Y. HSC has been tracking change in these markets since 1995.

"Our findings are similar to previous studies in that safety-net providers continue to experience financial pressures in part as a result of increasing numbers of uninsured people," the authors write. "However, some providers are responding in ways that we have not observed previously. These responses include actions to limit their exposure to indigent care, as well as actions that often mimic non-safety-net providers’ efforts to increase revenue and attract a more favorable patient mix."

The study identified the following safety-net provider strategies to shore up their bottom lines:

• Limiting exposure to uncompensated care costs. In three of the 12 communities-Seattle, Orange County and Lansing-the major safety-net hospitals have restricted non-emergency care for uninsured people living outside the local area. Queuing for appointments based on insurance coverage was a tactic being used by the safety-net hospital in Little Rock, with privately insured patients waiting the least amount of time for an appointment and uninsured patients waiting the longest. In other communities, some safety-net providers manage uncompensated care costs by more rigorously applying sliding-fee schedules, more aggressively collecting out-of-pocket payments from uninsured patients and offering discounts to patients who pay up front.
• Managing payer mix. Many safety-net providers are trying to expand their patient base by capitalizing on their broader specialty coverage compared with many other hospitals. For example, Seattle’s Harborview Medical Center competes with other hospitals for privately insured patients in the neurosciences and trauma care, with the latter attracting a strong payer mix through transfers from other hospitals. Cleveland’s MetroHealth also attempts to leverage perceived competitive advantages in trauma care, stroke, spinal cord and brain injuries, and community health. Likewise, CHCs have emerged as strong competitors in some communities for primary care services. CHCs in Greenville, northern New Jersey, and Syracuse reported more aggressive marketing efforts to attract privately insured patients.
• Upgrading or expanding facilities. Even with more limited access to capital, many safety-net providers are upgrading and expanding facilities to attract more privately insured patients. Replacement hospitals being constructed for safety-net providers in Little Rock, Orange County, and southern Dade County (Miami) are expected to be stronger competitors for privately insured patients because the facilities will be more modern and more accessible to privately insured patients.
• Expanding into more profitable service lines and areas. Some safety-net providers are trying to compete directly for the most profitable services and patients. Miami’s major safety-net system has acquired a hospital in a more affluent part of town, as well as a cardiac practice, and these acquisitions were explicitly aimed at increasing privately insured patients. Other acquisitions or expansions by some safety net providers include opening a new state-of-the-art geriatric center (Cleveland) and a CHC network taking over an obstetrics residency program from an academic medical center (Indianapolis).

The article concludes that safety-net providers’ ability to maintain "the balance between their mission and the requirements for financial viability has been tenuous for some time, but is becoming even more so in a marketplace that is becoming more competitive and profit-driven."

The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nation’s changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is funded principally by the Robert Wood Johnson Foundation and is affiliated with Mathematica Policy Research, Inc.