The Fraying of the Hospital Safety Net

(MoneyWatch)  The financial pressure on hospitals isn't entirely new, and neither are their increasingly desperate moves to reduce bad-debt burdens usually related to care for the uninsured or underinsured. What isn't always clear, though, is exactly how these problems result from broader changes in the healthcare market, or exactly what sort of consequences they might have over the longer run.

Which is where three healthcare researchers -- Peter Cunningham, Gloria Bazzoli, and Aaron Katz -- come in with a new study on commercial healthcare pressures on "safety net" hospitals, which serve the folks unfortunate enough not to possess comprehensive health insurance or big bank accounts.

Although their study is worth reading in full (Health Affairs was kind enough to make the full text available for free), the takeaway is pretty simple: Escalating costs for medical care and health insurance are swelling the ranks of the uninsured -- just as the same forces are pushing hospitals to compete harder for patients with adequate insurance. The natural consequence is that even traditional safety-net hospitals are starting to ratchet back on charity care just as it's needed most.

For instance, the report notes that hospitals in Seattle, Orange County, Calif., and Lansing, Mich., have all begun refusing non-emergency care for non-residents who fail the "wallet biopsy" -- that is, who lack the means to pay. Other hospitals force the uninsured to wait longer for appointments, shift patients to other hospitals and clinics, and have grown more aggressive about bill collection.

To its credit, the Seattle Times took a close look at one safety-net facility -- the Harborview Medical Center -- which aims to keep itself viable by building up capacity in specialized (not to mention lucrative) medical services:

At Harborview, new building and advertising campaigns have helped bring attention to "centers of emphasis" such as neurosciences, orthopedic reconstructive procedures and spinal surgery. Harborview needs 40 percent of its patients to be commercially insured in order to stay financially viable, said Johnese Spisso, the hospital's interim executive director.

"Now, could we do that if we didn't have a world-class faculty and a state-of-the-art facility? No, we'd be another county hospital of last resort," Spisso said, listing failing safety-net hospitals in other areas. "Those hospitals were ones that only took care of patients that couldn't pay," he said. "There's no system that can sustain that."

The big question, of course, is whether hospitals that are busy chasing such specialized patient populations will tolerate continued losses on charity care. We've already seen that elite nonprofit hospitals -- whose tax-exempt status is a tradeoff for their supposed devotion to "community service," including uncompensated care for the disadvantaged -- are instead happy to rake in the bucks. And the Health Affairs report notes that many safety-net hospitals are eager to shed that label in order to -- as the report delicately states it -- "appeal to a broader spectrum of patients."

In short, hospitals are doing exactly what health insurers are doing: Scrambling harder and spending more to attract the shrinking numbers of individuals who can still afford their services. This makes perfect sense as a short-term tactic for staving off disaster, but it's impossible to see how this ends well. Spending more on a dwindling customer base rarely does.