Arun Mohan, Jennifer Grant, Maren Batalden, and Danny McCormick

Transcription

1 Health Care Reform in the United States THE HEALTH OF SAFETY NET HOSPITALS FOLLOWING MASSACHUSETTS HEALTH CARE REFORM: CHANGES IN VOLUME, REVENUE, COSTS, AND OPERATING MARGINS FROM 2006 TO 2009 Arun Mohan, Jennifer Grant, Maren Batalden, and Danny McCormick Massachusetts health care reform, designed to expand coverage and access to care for vulnerable populations, serves as the model for national health reform in the United States that will be implemented in Yet, little is known about how the reform may have affected the demand for and the financial performance of safety net hospitals (SNH), the primary source of care for such populations before the reform. Using a quasi-experimental design that included all acute care hospitals in the state, we calculated changes in mean inpatient and outpatient volumes, revenue, and operating margins at SNH from the pre-reform (Fiscal Year 2006) to the post-reform (Fiscal Year 2009) period. We contrasted these changes with contemporaneous changes occurring among non-safety net hospitals (NSNH) using a difference-in-differences approach. We found that SNH in Massachusetts continue to play a disproportionately large role in caring for disadvantaged patients after reform, but that their financial performance has declined considerably compared with NSNH. Ongoing reform efforts in the United States should account for continued SNH demand among the most vulnerable patients and should be designed so as not to undermine the financial stability of SNH that meet this demand. In 2006, Massachusetts enacted comprehensive health care reform designed to achieve near-universal health insurance coverage, make health care more affordable, improve access to care, reduce racial and ethnic disparities in care, and thus broadly improve care for the state s most vulnerable residents (1 6). Before International Journal of Health Services, Volume 43, Number 2, Pages , , Baywood Publishing Co., Inc. doi:

2 322 / Mohan et al. the reform, vulnerable populations were often cared for through the state s relatively strong health care safety net, comprised of a comparatively generous Medicaid program and a network of safety net providers that included community health centers and mission-driven public and private hospitals (2, 7). As in other states, these safety net hospitals (SNH) have an open door policy, care for a high percentage of patients who are uninsured or have Medicaid, play an important role in the care of racial, ethnic, and linguistic minorities, and often provide clinically important but poorly reimbursed services such as primary care, mental health, and substance abuse treatment (8 11). A central feature of the reform law fundamentally changed the mechanism by which SNH were financed (2, 6). It redirected public sources of funding that had been provided directly to SNH to offset the cost of providing care to the uninsured and underinsured to instead subsidize the purchase of individual private health insurance or Medicaid for eligible, low-income state residents (2, 12, 13). As a result, SNH lost longstanding, relatively stable, dedicated funding sources and had to become newly reliant on attracting insured patients and on the adequacy of reimbursements from their (predominantly public) insurance plans. These changes raised concerns about the future financial health of SNH because of the potential decrease in demand for SNH services and potentially lower reimbursements from public sources following the reform (14 18). Although a previous study suggested persistent demand for safety net services following the Massachusetts reform (19), previous studies have not examined whether SNH patient volumes or financial performance improved or worsened following the reform in comparison to non-safety net hospitals (NSNH). Understanding how well SNH have fared under the reform could have important implications for the health of vulnerable patients in Massachusetts whose access to care the reform was designed to improve. In addition, because the recently enacted national health care reform law, the Patient Protection and Affordable Care Act (PPACA), is modeled closely on the Massachusetts reform, it could provide important insights in how SNH can be expected to fare nationally in the future. In this study, we report on the impact of the 2006 Massachusetts health care reform on the state s SNH service volumes and institutional financial performance relative to NSNH. We analyze hospital volume and financial data for Fiscal Years (FY) 2006 to 2009 that all acute care hospitals in Massachusetts report to the state annually. CHANGES IN FINANCING OF CARE FOLLOWING MASSACHUSETTS HEALTH CARE REFORM Prior to reform, the bulk of safety net financing in Massachusetts came from Medicaid and the uncompensated care pool (UCP), which reimbursed hospitals

3 Massachusetts Health Care Reform / 323 and community health centers for providing free care to low-income and uninsured patients with incomes up to 400 percent of the federal poverty level (16, 20). SNH were generally reimbursed at 90 percent of cost under this system while NSNH were reimbursed at approximately 60 percent of cost (20). The UCP was financed through a combination of assessments on all acute care hospitals in the state, insurance plan surcharges, and revenue from the state s Medicaid Disproportionate Share Hospital (DSH) program (16, 20). Additional supplemental payments were made to managed care organizations operated by the state s two largest safety net institutions, Boston Medical Center and Cambridge Health Alliance, from Medicaid (via the mechanism of Intergovernmental Transfers) (16). These features of the reform could potentially have affected demand and revenue at SNH relative to NSNH in a number of ways. First, the UCP (renamed the Health Safety Net [HSN]) was substantially reduced in size (21). Payments to hospitals from the HSN, previously administered as block grants based on reported prior-period hospital charges, were, after reform, based on submitted and adjudicated claims using Medicare reimbursement principles. This resulted in payment-to-cost ratios that were lower at some SNH than before the reform (21). Second, Medicaid eligibility was expanded, potentially allowing previously uninsured patients (who, prior to reform, had been essentially tied to SNH because of the free care they offered) to seek care from any willing provider. Third, the reform promised increased Medicaid payment rates to hospitals and physicians, although these were phased out in FY 2009, earlier than planned as a result of state budgetary constraints (22). Fourth, Medicaid DSH payments were diverted from SNH to pay for individual insurance and other features of the reform (14). Fifth, supplemental payments to the Medicaid managed care organizations operated by the state s two largest safety net systems were phased out after a one-year grace period (23). Last, access to individual health insurance was expanded through Commonwealth Care, the newly created, publicly subsidized, private insurance plan for legal residents with incomes below 300 percent of the federal poverty level. However, Commonwealth Care payment rates to hospitals are substantially below the cost of care and well below payment rates that SNH previously received through the UCP (24). In addition to these policy changes, which occurred directly as a result of the reform law, a number of state administrative changes affected the Medicaid payment methodology and rates and were not directly related to the reform. These changes occurred shortly after the reform in response to the costs of health reform to the state, as well as a worsening state financial picture during the nationwide economic downturn in the late 2000s. Because the reform substantially increased SNH reliance on Medicaid payment rates for their solvency, the impact of these Medicaid payment rate changes on hospitals is related to reform and could have disadvantaged SNH relative to NSNH (25).

4 324 / Mohan et al. METHODS Study Aims This study had two principal aims. The first was to examine the impact of the Massachusetts health reform on utilization of inpatient and outpatient services at SNH and contrast these with corresponding changes at NSNH. The second was to assess the impact of the reform on the financial health of SNH compared with NSNH. Data Sources We used two data sources from the Massachusetts Division of Health Care Finance and Policy (DHCFP). These data sources contained information for FY (beginning October 1 for most hospitals), which immediately precede and follow a transitional period of health reform implementation (July 2006 January 2008) (26). We obtained information on utilization, revenue, expenses, and hospital characteristics (e.g., teaching status, region, number of licensed beds) for all 66 acute care hospitals in Massachusetts from the Commonwealth of Massachusetts Hospital Statement of Costs, Revenues and Statistics (DHCFP-403 Cost Report), an annual report for which each Massachusettsbased hospital is required to submit these data in standardized format. Although hospitals report utilization information by payer for each year, hospitals were not required to identify the number of HSN or Commonwealth Care patients until Instead, these were combined with other payer types when reported. We obtained information on profitability for all Massachusetts hospitals from the Hospital Financial Performance Reports, which provide state-audited profitability data from all acute care hospitals. These data were supplemented with consolidated audited financial statements for the state s two largest safety net providers (Boston Medical Center and Cambridge Health Alliance), which have affiliated and solely owned health plans, the performance of which the hospital financial performance reports alone might not accurately reflect. Defining Safety Net Hospitals We explored several definitions of SNH for this study. For our analysis, we ultimately chose a Massachusetts DHCFP definition of SNH as hospitals with a high level of utilization by patients with Medicaid (> 1 SD above the mean) and a low level of utilization by patients with commercial insurance (> 1 SD below the mean) (28). We used this definition for several reasons. First, Medicaid is the principal source of health care financing for low-income populations (29). Second, Medicare reimbursement rates to acute care hospitals are greater than reimbursement under other forms of publicly financed care such as MassHealth

5 or Health Safety Net (30). Thus, including Medicare in the definition may overestimate a hospital s degree of financial burden. Last, the DHCFP definition is locally accepted and includes Massachusetts hospitals generally regarded as having a safety net mission (28). NSNH were defined as general acute care hospitals (one children s hospital was excluded) that were not SNH. Analysis Massachusetts Health Care Reform / 325 The outcomes we examined were: number of inpatient discharges, number of outpatient visits, inpatient and outpatient net patient service revenue, net patient service revenue per discharge and per outpatient visit, and operating margins (31, 32). To examine the impact of the Massachusetts health care reform on changes in hospital volumes and financial performance at SNH relative to NSNH, we estimated pre-post (FY ) reform changes in each outcome of interest at SNH and contrasted these with corresponding changes in NSNH, often referred to as a difference-in-differences analysis (33). For each outcome measure, we calculated the mean percentage change at each SNH and NSNH from FY 2006 to We then estimated the net difference (and 95% confidence intervals) between the mean changes observed at SNH and NSNH over this time using the student s t-test. Difference-in-differences estimates for operating margins and revenue per inpatient discharge and outpatient visit were weighted to hospital inpatient volume to account for wide variations in volumes among Massachusetts hospitals. We did not have information on changes in private payer reimbursement rates or on changes in outpatient case mix, and thus we could not control for these factors in our analysis. In addition, although we did have information on teaching status, size, and geography, our small sample size of SNH (n = 7) and overlap of features precluded controlling for these factors. We were, however, able to compare changes in inpatient severity of illness using the mean inpatient case mix index (3M APS-DRG Version 21.0) available in the Hospital Summary Utilization Data Files for FY at SNH and NSNH. We compared mean case mix index scores using student s two-tailed t-tests and found no significant difference (data not shown) and thus did not control our analyses for this variable. We repeated all analyses using alternative definitions of SNH described above. Results were essentially the same for all definitions of SNH. Last, to assess changes in the distribution of inpatient discharges and outpatient visits according to insurance type, we calculated these volumes for each fiscal year from 2006 to One category of insurance type for these analyses, other government, includes patients whose care was reimbursed by government payers other than Medicare, Medicaid, or Health Safety Net. After FY 2006, other government was primarily comprised of Commonwealth Care products. SAS 9.2 was used for all analyses.

6 326 / Mohan et al. RESULTS Hospital Characteristics As shown in Table 1, the seven SNH (Boston Medical Center, Brockton Hospital, Cambridge Health Alliance, Caritas Carney Hospital, Holyoke Medical Center, Lawrence General Hospital, and Mercy Medical Center) and 59 NSNH hospitals were similar in their geographic distribution, ownership status, and teaching status, but differed in their size, utilization, and (by definition) payer mix. Specifically, SNH were larger with higher mean levels of both inpatient and outpatient utilization. There were more than twice as many Medicaid and self-pay discharges at SNH than NSNH. Conversely, commercial health insurance represented a substantially smaller proportion of discharges at SNH. Changes in Utilization Table 2 shows changes in volumes over the study period. The number of inpatient discharges at NSNH increased minimally and at SNH decreased minimally. The difference-in-differences estimate for this comparison was not statistically significant. The number of outpatient visits at NSNH increased 1.6 percent but rose 14.7 percent at SNH, although the difference-in-differences estimate for this comparison was also not statistically significant. A higher proportion of inpatient discharges and outpatient visits at SNH was provided to low-income patients, including Medicaid patients, self-pay, and Commonwealth Care (Figure 1). In FY 2009, patients with Medicaid or other government insurance and those who were self-pay accounted for 40.8 percent of all discharges at SNH and 19.1 percent at NSNH (p < ), while they represented 53.4 percent of outpatient visits at SNH and 21.8 percent at NSNH (p < ). The proportion of the state s uninsured who received care at SNH grew from 41.8 percent in 2006 to 44.8 percent in FY 2009 (p < ). Changes in payer mix from FY 2006 to 2009 were most notable among outpatients. Growth in outpatient visits at SNH was driven primarily by patients covered by Medicaid (23.6% increase), private (19.9% increase), and Commonwealth Care (375.5% increase). The number of outpatient visits from uninsured (self-pay) patients at SNH fell by an average of 17,740 over the study period, representing a 25.3 percent decline. There was a proportionately greater decline in the number of uninsured patients at NSNH, which fell by 34.5 percent over the study period. Net Patient Service Revenue As shown in Table 3, inpatient revenue per discharge grew more slowly at SNH than at NSNH with a difference-in-differences estimate of US$1,050 (p < 0.001).

7 Massachusetts Health Care Reform / 327 Table 1 Characteristics of Massachusetts safety net hospitals (SNH) and non-safety net hospitals (NSNH), FY 2006 Hospital characteristic Region, No. (%) Northeast Central West Metro Boston Southeast Hospital size (beds) Small (< 100) Medium ( ) Large (> 300) Mean (SD) Ownership status, No. (%) For profit Non-profit Academic status, No. (%) Teaching Non-teaching Utilization, mean (SD) Inpatient admissions in 2006 Outpatient visits in 2006 ER visits in 2006 Payer mix, mean (%) Health safety net discharges Medicaid discharges Commercial discharges Case Mix Index, mean (SD) NSNH (%) (n = 58) 8 (12.3) 7 (10.8) 10 (15.4) 23 (39.6) 10 (15.4) 13 (22.4) 28 (48.3) 17 (29.3) 246 (222) (20.7) 46 (79.3) 12,821 (12,264) 204,899 (229,515) 44,293 (32,367) 420 (3.3) 1,726 (13.5) 4,793 (37.4) 0.93 (0.24) SNH (%) (n=7) 0 (0) 0 (0) 2 (28.5) 3 (42.8) 2 (28.5) 0 (0) 5 (71.4) 2 (28.6) 296 (128) (28.5) 5 (71.4) 15,129 (7,087) 340,486 (410,853) 63,241 (34,841) 1,339 (8.9) 4,525 (29.9) 3,030 (20.0) 0.87 (0.12) Source: Authors analysis of Commonwealth of Massachusetts Hospital Statement of Costs, Revenues and Statistics (DHCFP 403 Cost Report) from the Division of Health Care Finance and Policy, Commonwealth of Massachusetts.

8 328 / Mohan et al. Table 2 Changes in patient volume at safety net hospitals (SNH) and non-safety net hospitals (NSNH) in Massachusetts, FY Mean number (SD) Absolute change Percent change Difference-in-differences, , SNH vs. NSNH (95% CI, p value) Inpatient discharges SNH 15,129 (7,088) 14,777 (7,922) % 598 ( 1,559, 363, p = 0.22) NSNH 12,821 (12,264) 13,067 (12,745) % Outpatient visits SNH 340,486 (410,854) 390,372 (485,185) 49, % 45,342 ( 23,640, 114,325, p = 0.16) NSNH 204,899 (229,515) 209,443 (24,221) 4, % Note: A negative value for difference-in-differences indicates that hospital volume declined at SNH relative to NSNH. Source: Authors analysis of Commonwealth of Massachusetts Hospital Statement of Costs, Revenues and Statistics (DHCFP 403 Cost Report) from the Division of Health Care Finance and Policy, Commonwealth of Massachusetts. Changes in outpatient revenue per visit declined 9.0 percent at SNH and increased 23.7 percent at NSNH. The difference-in-differences of US$174 per visit was statistically significant. From FY 2006 to 2009, inpatient net patient service revenue (NPSR) grew 2.6 percent at SNH compared to 7.7 percent at NSNH, while outpatient NPSR grew 4.4 percent at SNH compared to 25.6 percent at NSNH. SNH and NSNH had similar growth in inpatient NPSR until FY 2009, when revenue fell 5.8 percent at SNH and grew 6.5 percent at NSNH. This was led by declines in revenue at the state s two largest safety net providers. Similarly, while SNH experienced less growth in outpatient NPSR throughout the study period, the difference was most pronounced in FY 2009, when NPSR fell 9.5 percent at SNH and grew 9.3 percent at NSNH.

9 Massachusetts Health Care Reform / 329 Figure 1. Changes in patient volume by payer, safety net hospitals (SNH), and non-safety net hospitals (NSNH), FY Note: Other Government includes Commonwealth Care. Medicare and other payers not shown. Source: Authors analysis of Commonwealth of Massachusetts Hospital Statement of Costs, Revenues and Statistics or DHCFP-403 Cost Report from the Division of Health Care Finance and Policy, Commonwealth of Massachusetts.

10 330 / Mohan et al. Table 3 Revenue and costs at safety net hospitals (SNH) and non-safety net hospitals (NSNH), FY Mean number (SD) Absolute change Percent change Difference-in-differences, , SNH vs. NSNH (95% CI, p value) Inpatient net patient service revenue ($ millions) SNH (126.6) (146.3) % $17.0 ( , p = 0.27) NSNH (176.7) (211.9) % Outpatient net patient service revenue ($ millions) SNH (197.7) (200.1) % $22.3 ( , p = 0.28) NSNH (125.2) (173.6) % Inpatient net patient service revenue per discharge ($) SNH 8,331 (3,159) 9,123 (3,285) % $1050 ( , p < 0.001) NSNH 7,631 (4,574) 9,194 (5,394) 1, % Outpatient net patient service revenue per visit ($) SNH 473 (213) 431 (309) % $174 ( , p = 0.006) NSNH 604 (432) 731 (483) % Total direct costs ($ millions) SNH (328.4) (385.7) % $10.0 ( , p = 0.69) NSNH (374.9) (466.0) % Source: Authors analysis of Commonwealth of Massachusetts Hospital Statement of Costs, Revenues and Statistics (DHCFP 403 Cost Report) from the Division of Health Care Finance and Policy, Commonwealth of Massachusetts.

11 Massachusetts Health Care Reform / 331 Operating Margins Operating margins declined at SNH relative to NSNH (Figure 2). SNH experienced an absolute decrease in operating margins of 0.69 percent during the study period, while those at NSNH grew 1.65 percent. The difference-in-differences estimate was 2.30 percent (p < 0.008). DISCUSSION We found that following full implementation of health care reform in Massachusetts, there was no change in inpatient utilization at SNH compared with NSNH; while outpatient utilization grew substantially more at SNH, this difference did not achieve statistical significance. SNH continued to care for a higher proportion of low-income patients than NSNH. In spite of this, we found decreased revenue at SNH compared to NSNH and both an absolute and a relative decline in profitability at SNH compared to NSNH following health care reform. Figure 2. Operating margins, weighted for number of hospital beds, safety net hospitals (SNH) and non-safety net hospitals (NSNH), FY Source: Authors analysis of Hospital Financial Performance Reports from the Division of Health Care Finance and Policy, Commonwealth of Massachusetts.

12 332 / Mohan et al. Some health policy experts have questioned whether uninsured vulnerable patients who are tied to SNH for their care would choose to seek care outside the safety net once they become insured (8, 34, 35). Our findings are consistent with previous work that suggests that even with newly acquired insurance, many residents of Massachusetts still sought care at SNH rather than NSNH for both inpatient and outpatient care. Our finding that financial performance suffered at SNH compared with NSNH, despite stable demand for services at SNH, suggests that the specific combination of features of the Massachusetts health care reform may have adversely affected the financial performance of SNH relative to NSNH. Although changes to financing of SNH may have been influenced by the economic downturn and subsequent response from the state to limit resources, the reform itself substantially increased the reliance of SNH on reimbursement rates from payers for their solvency. Thus, although subsequent administrative changes were not part of the reform law, the two are closely related. These changes were felt most acutely by the state s two largest safety net providers, one of which sued the state for failure to pay Medicaid rates equal to cost (36). In that year, SNH saw a 6.8 percent drop in mean NPSR, approximately US$27 million. The newly enacted national health care reform law, PPACA, is modeled after the law in Massachusetts. It shares with Massachusetts an expansion of Medicaid, increased funding for community health centers, and a substantial reduction in Medicaid DSH funding to SNH in order to subsidize private insurance for low-income individuals (8). There were a number of features of the financing of the health care safety net in Massachusetts prior to reform not found in most other states, such as the comparatively large size of Medicaid supplemental payments paid to SNH pre-reform. Nonetheless, our data suggest that PPACA could have a similar deleterious effect on SNH demand and financial status. Our study has several limitations. First, as noted, it is possible that factors unrelated to the reform could have influenced our findings. Hospital teaching status, size, geography, private insurance reimbursement rates, or changes in outpatient severity of illness might have differentially affected demand or financial performance at SNH and NSNH. Unfortunately, we lacked data on changes in private payer reimbursement rates or outpatient case mix. Although we did have information on teaching status, hospital size, and geographic location, our sample size and the clustering of these features among hospitals precluded controlling for these factors in our analysis. Nevertheless, we are unaware of any changes in coverage or financing of care according to teaching status, hospital size, geographic location, or private reimbursement rate changes that occurred contemporaneously with the reform that could explain the differences we observed. Furthermore, our finding that there was no differential change in case mix index between SNH and NSNH provides reassurance that patient-level clinical factors are unlikely to explain our results. Last, the Massachusetts health care reform was implemented during a substantial national and state economic

13 Massachusetts Health Care Reform / 333 downturn. This could have preferentially and negatively affected the financial performance of SNH through, for example, failure to collect reimbursements from self-pay patients who may have been more numerous during the economic downturn. However, because the reform resulted in coverage of 95 percent to 98 percent of the state s residents, and there remains in place a pool for the payment of uncompensated care, it seems unlikely the economic downturn would have had differential effects on SNH and NSNH. Our findings add potentially important information to the emerging picture of the impact of the Massachusetts reform on vulnerable patients. They underscore that while expanding insurance coverage is essential to improving access to care for vulnerable patients, implementing health reform that finances insurance expansions with resources previously used to support SNH directly carries potential risks to the financial performance of SNH. If poorer financial performance lessens SNH s capacity to care for such patients, this and similar reform efforts could have effects opposite to those intended. Close assessments of the impact of the financial performance of SNH on the availability and range of important clinical services they provide and on patient outcomes, both in Massachusetts and nationally, are warranted. Acknowledgments Dr. McCormick received support for this project from the National Heart Lung and Blood Institute (Grant NHLBI U01HL ). REFERENCES 1. Massachusetts Commonwealth Chapter 58: An act providing access to affordable, quality health care Holahan, J., and Blumberg, L. Massachusetts health care reform: A look at the issues. Health Aff. 25(6):w , Long, S. K., and Masi, P. B. How have employers responded to health reform in Massachusetts? Employees views at the end of one year. Health Aff. 27(6):w , Long, S. K., and Masi, P. B. Access and affordability: An update on health reform in Massachusetts, fall Health Aff. 28(4):w , Long, S. K., and Stockley, K. Sustaining health reform in a recession: An update on Massachusetts as of fall Health Aff. 29(6): , McDonough, J. E., et al. The third wave of Massachusetts health care access reform. Health Aff. 25(6):w , Stewart, A. L., et al. Interpersonal processes of care in diverse populations. Milbank Q. 77: , Katz, M. H. Future of the safety net under health reform. JAMA 304(6): , Lewin, M. E., and Baxter, R. J. America s health care safety net: Revisiting the 2000 IOM report. Health Aff. 26(5): , Institute of Medicine. America s Health Care Safety Net: Intact But Endangered. National Academy Press, Washington, DC, 2000.

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15 Massachusetts Health Care Reform / Cameron, A. C. Microeconometrics: Methods and Applications. Cambridge University Press, New York, Sandler, D. A., and Mitchell, J. R. Interim discharge summaries: How are they best delivered to general practitioners? BMJ 295(6612): , Bisgaier, J., and Rhodes, K. V. Auditing access to specialty care for children with public insurance. N. Engl. J. Med. 364(24): , Parmet, W. E. Litigation amidst reform: The Boston Medical Center case. N. Engl. J. Med. 361(19): , Direct reprint requests to: Arun Mohan, MD, MBA Division of Hospital Medicine Emory University School of Medicine 1364 Clifton Road NE Atlanta, GA arun.mohan@emory.edu