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Safety-Net Hospitals Brace For Cut To Federal Subsidies

Oct 14, 2012

This story is part of a reporting partnership that includes Minnesota Public RadioNPR and Kaiser Health News.

MINNEAPOLIS, Minn. — 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 requests from people who wish to see a doctor.

Fielding a call, employee Rachel Kass asks a series of questions: birthdate, address, telephone number, employment and determines that the caller works full-time at McDonald’s 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."

The discount plan is a way to get a better handle on what folks can pay towards their care. The idea is that people should feel some responsibility towards their care even if it’s just $10 month. The medical center 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, Hennepin treats a disproportionately large number of patients who cannot pay for some or all of their care.

For more than 20 years, hospitals have relied on subsidies provided by the federal government to help defray those costs. But that funding is set to decline starting in 2014 with the full implementation of the federal health law.

The assistance is known as DSH payments, for disproportionate share hospital, and the program is critical to keeping the hospital's finances in the black, said Michael Harristhal, Hennepin’s vice president of public policy and strategy. "That's been a very important part of our total revenue stream," he said.

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

The $11 billion DSH program provided $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 in St. Paul.

The federal health care law won't eliminate DSH payments altogether, but it cuts 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 need fewer DSH subsidies because they'll be treating a reduced number of patients who lack insurance.

Not so fast, Harristhal says. 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."

Still, Blewett said, there is great uncertainty about how large a cut Minnesota's 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.

Scott Leitz, the assistant commissioner of Minnesota’s Department of Human Services, said state hospitals will still need help. The department estimates there will 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.

This story is part of a reporting partnership that includes Minnesota Public RadioNPR and Kaiser Health News.
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