To survive reform, safety-net hospitals need integration, partnerships

A new report delivers bad news for already struggling safety-net hospitals, warning that the facilities will face a "tsunami of financial challenges" thanks to the timing and implementation of health-reform provisions.

Unintended consequences of the Affordable Care Act will cause vulnerable populations short-term harm, such as expanded healthcare inequities and limited access to services, according to the report from consulting form Alvarez & Marsal.

Amid shrinking state Medicaid budgets, disproportionate share hospital (DSH) payment cuts and Medicare market basket payment updates, thanks to greater access to insurance under the ACA, safety-net hospitals now have to compete for the  patient population they traditionally served, the report notes. Newly acquired health insurance gives patients a choice of hospitals, upping the risk that patients will seek care at non-safety nets.

"Safety net hospitals are now operating in the untenable crosshairs of economic distress and healthcare reform," David Gruber, M.D., director of research in A&M's Healthcare Industry Group, said in a statement.

To remain competitive and viable, these providers of last resort must form an integrated delivery system, for example, with academic medical centers or teaching hospital systems, according to the report. Integration would achieve economies of scale, produce operational and informational efficiencies, improve clinical effectiveness, and increase access to specialist care.

The report also points to affiliation with federally qualified healthcare centers (FQHCs) as a way for safety nets to get more primary care services and deliver cost-effective care.

Moreover, private-equity firms such as Cerberus Capital Management can offer a potential source of capital to safety-net hospitals, according to Alvarez & Marsal.

However, not all hospital-private equity partnerships are fruitful. The marriage of private equity giant Cerberus and hospital operator Steward Health Care System led to a $14.6 million operating loss in its first year, FierceHealthFinance previously reported.

For more:
- read the Alvarez & Marsal announcement
- download the report (.pdf)