Effects of the Balanced Budget Act and Market Forces on the Health Safety Net

Grant Description: How has the Balanced Budget Act of 1997 (BBA) and other major trends (i.e., growth in the number of uninsured, growth in private managed care, and Medicaid managed care) affected the US hospital safety net? Researchers at Virginia Commonwealth University examined the structural, operational, and outcome-related impacts of the changing environment. Specifically, they studied four research questions: 1) How are recent changes in hospital reimbursement through the BBA and the 1999 Balance Budget Refinement Act (BBRA) interacting with other market and policy forces to affect the role and involvement of hospitals in local health safety nets? 2) How are current financial pressures affecting the operational decisions of safety net hospitals related to patient care staffing and the intensity of services provided? 3) How are current financial pressures and operational decisions in response to these pressures affecting the quality of patient care within safety net hospitals? 4) As BBA and BBRA provisions are reassessed and revised over the next two years, what potential effects would these revisions have on hospital involvement in safety net care, their operational decisions, and ultimately the quality of care that patients receive? This proposal provides information to policymakers and hospital administrators about the effects on the safety net of changes in reimbursement to help them formulate policy that addresses potential unintentional consequences of the BBA.

Policy Summary: The project assessed the effects of the BBA and other important market factors on the U.S. hospital safety net. Specifically, the researchers examined: the local structure of the hospital safety net by examining the changing roles and involvement of hospitals in safety net care, the operation of safety net hospitals by studying staffing intensity, and the outcomes of care for indigent patients as measured by selected quality of care indicators. The discussion below summarizes policy relevant findings in each of these areas. Structure of the Hospital Safety Net The results demonstrate that certain hospitals reduced their indigent care involvement during the late 1990s and will likely continue to do so in the future. Specifically, the researchers found that uncompensated care was declining in hospitals that are not core safety net institutions to the market. Although not part of the core, the contributions of these hospitals add up, and thus, their cutbacks have a meaningful impact on core safety net institutions. They also found that non-safety net hospitals were cutting back on public health and specialty services commonly used by uninsured and poor patients, which may signal that they intend to reduce their future involvement in charity care activities. Finally, they found that voluntary safety net hospitals that felt greater fiscal pressures from Medicare BBA experienced particularly sharp declines in their provision of uncompensated care and that this effect varied by hospital market conditions. Overall, the findings of the study in conjunction with those of other recent studies suggest that the hospital safety net continues to be intact but is increasingly strained as indigent care becomes concentrated in a small set of core facilities. The policy implications from this analysis are that continued targeting of public support to hospitals that demonstrate a commitment to indigent care provision is justified as is continued scrutiny of non-profit hospital participation in local health safety nets. Operation of Safety Net Hospitals The researchers’ analysis in this area suggests that non-safety net hospitals most susceptible to the provisions of the BBA experienced a decline in staffing ratios about twice the rate of non-safety net hospitals that were least susceptible to the BBA. The researchers were unable to detect an effect of the BBA on staffing at safety net hospitals. Thus, the BBA may have exasperated the nursing shortage at non-safety net hospitals that are heavily reliant on Medicare patients because the financial effects of BBA resulted in lower wages, which in turn affects the supply of nurses. Safety net hospitals did not respond to the provisions of the BBA by cutting staffing, and this is likely due to the fact that about one-third of safety net hospitals are public. Quality of Care in Safety Net Hospitals A final area of inquiry relates to changing hospital quality of care for patients of safety net and non-safety net hospitals. Preliminary analysis found some evidence that core safety net hospitals had lower quality than non-safety net hospitals. They found no evidence that hospitals subject to greater financial pressure from Medicare had lower quality before or after the implementation of BBA. Nor did they find evidence that the relative quality of care at core safety net hospitals relative to non-safety net hospitals changed after BBA. The implications of these findings are that BBA did not adversely affect quality of care at safety net hospitals or hospitals most vulnerable to BBA financial pressure. The lower quality observed in core safety net hospitals may require more study, though, and potential intervention to assure the population served by these hospitals receives high quality care.