5 key strategies for public hospitals to stay afloat

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Faced with mounting economic pressures amid health reform, public hospitals have increased efforts for funding patient care, while growing capacity.

The Affordable Care Act will affect public hospitals' finances "in two opposing ways," according to a Center for Studying Health System Change (HSC) report released today. While health reform is expected to improve the payer mix as lower-income, uninsured people gain Medicaid or subsidized private insurance coverage, Medicare and Medicaid will reduce disproportionate share hospital payments, placing a severe financial burden on public hospitals that offer care to low-income patients.

"The cut in federal subsidies is certain, while the Medicaid expansions are uncertain, and public hospital leaders are worried they will have many more uninsured patients than expected if states choose not to expand Medicaid," study coauthor Laurie E. Felland, director of qualitative research, said in a statement.

The Washington, D.C., nonpartisan policy researcher looked at strategies during the past 15 years by Cambridge (Mass.) Health Alliance, MetroHealth System in Cleveland, Wishard Health Services in Indianapolis, Jackson Health System in Miami and Maricopa Integrated Health Services in Phoenix.

Although the studied areas varied in insurance coverage, HCS found some consistent themes in strategies to adapt to challenging times:

Establish an independent governance structure
Although still publicly owned, most of the studied public hospitals maintain their own local government that allows an independent board to develop strategies that might be unpopular with the community, such as layoffs. For instance, after a county grand jury in 2010 found that Jackson Health System's lack of an independent board hurt its finances, a new local independent board renegotiated labor contracts and turned around expenses.

Secure predictable local funding sources
Public hospitals rely heavily on direct public funding, and to a lesser extent, philanthropy. While private hospitals have reported a national average of 5 percent margins, public hospitals, on average, break even. Marion County/Indianapolis, therefore, voted to pass a bond referendum in 2009 that helped build Wishard a replacement hospital, for instance.

Shore up Medicaid revenues
HCS found particularly at risk are public hospitals in states that choose to forgo Medicaid expansion. While the surveyed hospitals said they were worried their health plans would include private hospitals and the Medicaid patients at the public hospitals would be reassigned to other providers, overall, that didn't happen because hospitals prepared for managed care.

Increase revenue collection efforts
During the past 15 years, the public hospitals redoubled efforts to collect for services from patients and third-party payers. For instance, Maricopa Integrated Health Services used information technology to identify which uninsured patients were eligible for free or reduced cost care and implemented a more proactive billing strategy, the report noted.

Attract privately insured patients
Cambridge Health Alliance attracted new privately insured patients by improving their facilities. In addition, having a small percentage of insured patients allowed the public hospitals to negotiate higher payment rates from commercial insurers.

For more information:
- read the annoucement
- see the summary and report (.pdf)

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