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'Safety net' hospitals brace for potential cuts

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Hennepin County Medical Center
Hennepin County Medical Center in downtown Minneapolis, Friday, May 11, 2012 As the state's largest safety net hospital, HCMC treats a disproportionately large number of patients who cannot pay for some or all of their care.
MPR Photo/Jennifer Simonson

Hennepin County Medical Center and other so-called "safety net" hospitals are preparing for a decline in federal funding due to the national health care overhaul.

These hospitals are typically large urban hospitals that provide a significant amount of care to people who cannot afford to pay for it. The health care overhaul is reducing federal subsidies those hospitals have relied on for more than 20 years.

At the Hennepin County Medical Center about 50 men and women are wedged in cubicles, talking on headsets. The scene looks like a telemarketing boiler room, but here the employees aren't making the calls; they are taking calls from people who wish to see a doctor.

Fielding a call, employee Rachel Kass listens and then asks the caller a series of questions: birthdate,  address, telephone number, employment — the caller works full-time at McDonalds but has no health insurance.

"What I'm going to do is set you up with what we call our Hennepin Care discount plan that automatically gives you a 52 percent discount off the top," Kass tells the caller. "And then if you need more coverage than that, I can set you up with a financial counselor."

Rachel Kass
Rachel Kass, lead patient access services specialist at the Hennepin County Medical Center, helps a caller schedule a doctor's appointment in a photograph from Tuesday, Sept. 25, 2012.
MPR Photo/Elizabeth Stawicki

HCMC will have to absorb the loss if the patient can't pay the full cost of the doctor visit. As the state's largest safety net hospital, HCMC treats a disproportionately large number of patients who cannot pay for some or all of their care. As result, the federal government provides subsidies to help defray those costs.

The assistance is known as DSH payments, for Disproportionate Share Hospital. The program is critical to keeping the hospital's finances in the black, said Michael Harristhal, HCMC vice president of public policy and strategy.

"That's been a very important part of our total revenue stream," he said.

Harristhal said HCMC's annual revenues approach $700 million and about $30 million of that is through the DSH program. Even though those payments amount to less than 5 percent of the hospital's revenue, he said they help HCMC break even.

The $11 billion DSH program funneled $75 million to Minnesota hospitals last year, including children's hospitals in Minneapolis and St. Paul, the University of Minnesota Medical Center and Regions Hospital.  

The federal health care law won't eliminate DSH payments altogether, but does cut them by half over five years. The reductions begin in 2014,  the same year the law requires most Americans to obtain health insurance or pay a penalty. The theory is that hospitals will require fewer DSH subsidies because they'll be treating fewer patients who lack insurance.

"There is concern about the fairly abrupt transition here and those DSH payments do become diminished as scheduled. That does make it fairly precarious for us going forward."

Nott so fast, Harristhal said. He'd like to see the theory put to practice before the cutbacks begin.

"There is concern about the fairly abrupt transition here and those DSH payments do become diminished as scheduled. That does make it fairly precarious for us going forward," Harristhal said.

University of Minnesota health economist Lynn Blewett said the state's own history may provide some reassurance to safety net hospitals.

"We did some work a number of years ago with the MinnesotaCare program and saw as MinnesotaCare expanded, levels of uncompensated care were reduced," Blewett said. "So there is some evidence that as you get more people covered, that there should be less need for free care provided by hospitals." 

Blewett said there is still great uncertainty though about how large a cut HCMC and Minnesota's other safety net hospitals will face.

The law calls for cutting half a billion dollars from the DSH program starting in about a year, but the Obama administration has yet to decide which states will see the largest cuts.

State Department of Human Services Assistant Commissioner Scott Leitz said Minnesota hospitals will still need help. The department estimates there will still be 200,000 people in Minnesota who lack health insurance in 2016, either by choice or through exemptions in the health law. The state may need to reallocate the DSH payments, he said.

"We'll have to make an analysis around who is seeing the uninsured, and are we allocating the dollars today properly or do we need to make any changes," Leitz said.

For now, safety net hospitals can only wait to find out how much of their own safety net will survive.