Safety net hospitals suffer steep losses, fear prospect of $8B in Medicaid cuts

The nation’s safety net hospitals have delivered an outsized share of charity care from health systems, and they are paying a price.

A new report from America’s Essential Hospitals, the organization representing safety-net hospitals, illustrates some of their struggles.

Safety net hospitals provided an outsized portion of charity care and suffered steep losses in 2021, America's Essential Hospitals said in a new report. They're worried about a scheduled $8 billion cut in a key Medicaid program. (Image credit: ©Gregory Miller - stock.adobe.com)

The group represents more than 300 safety net providers, who serve a high number of patients with low incomes and patients from minority communities. Those hospitals make up only about 5% of America’s acute-care hospitals, but they provided roughly a quarter (25.2%) of charity care nationwide in 2021, according to the report released Thursday.

Safety net hospitals often operate with modest margins, but their losses grew as they saw more patients in need during the COVID-19 pandemic. In 2021, these safety net hospitals had an average operating margin of -8.6%, compared to -1.4% for other hospitals, the report says. While most nonprofit hospitals have struggled financially during the pandemic, the safety net hospitals say they have fared worse.

Nearly three-quarters of the patients in safety net hospitals were uninsured or relied on Medicare or Medicaid, while more than half of all patients discharged were from underrepresented ethnic or racial groups.

“These data show how the added pressure of the pandemic deepened long-standing financial challenges for our hospitals, including public payer shortfalls and the high uncompensated costs of their safety net mission,” Beth Feldpush, senior vice president of policy and advocacy for America’s Essential Hospitals, said in a statement.

• Read more: Washington state hospitals say losses are unsustainable

The nation’s safety net hospitals are also deeply worried about the prospect of an $8 billion reduction in a Medicaid program that provides a critical source of funding. The Medicaid disproportionate share hospital (DSH) program is slated to be cut by 8% this fall. The program, as its name suggests, offers more federal funds to hospitals that care for a higher percentage of patients who rely on Medicaid.

A temporary measure has pushed back a scheduled cut until mid-November, but the group says if that reduction takes place, then it would be a body blow for safety net hospitals.

“They simply cannot sustain a cut of that magnitude,” Feldpush said in a statement. “Access to care and lifesaving services will suffer unless Congress acts.”

Over the next four years, the DSH program is slated to be cut by a total of $32 billion, or $8 billion annually. Hospital organizations, including America’s Essential Hospitals, have implored lawmakers for months to block the planned reduction in funds.

Bipartisan efforts have emerged to avert the cuts, and lawmakers have stopped scheduled reductions in the past.

A bipartisan group of 51 senators, led by U.S. Sens. Bob Casey, D-Pa., and U.S. Sen. James Lankford, R-Okla., sent a joint letter to Senate leaders seeking to block the reduction in Medicaid DSH funds. A bipartisan group of House members also introduced legislation in April to restore the money.

The new report also illustrates some of the social drivers that force safety net hospitals to provide a great deal of charity care.

More than 14 million lived below the poverty line in the communities served by safety net hospitals, while 10 million lack health insurance and more than 5 million have limited access to healthy foods, the report states.