Health Care for the Poor and Uninsured After a Public Hospital's Closure or Conversion

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About the Series

Assessing the New Federalism is a multi-year Urban Institute project designed to analyze the devolution of responsibility from the federal government to the states for health care, income security, employment and training programs, and social services. Researchers monitor program changes and fiscal developments. In collaboration with Child Trends, Inc., the project studies changes in family well-being. The project aims to provide timely, nonpartisan information to inform public debate and to help state and local decisionmakers carry out their new responsibilities more effectively.

Key components of the project include a household survey, studies of policies in 13 states, and a database with information on all states and the District of Columbia, available at the Urban Institute's Web site. This paper is one in a series of occasional papers analyzing the information from these and other sources.

Introduction

The Health Care Safety Net and Public Hospitals

Local public hospitals have long served as medical providers of last resort for the uninsured poor, anchoring the safety net that provides access for the disadvantaged, especially in large urban areas (Lipson and Naierman 1996), like the five examined in this study. Such public hospitals provide not only emergency services but also urgent care and even primary care, through emergency rooms and outpatient clinics. After Medicare and Medicaid began in the mid-1960s, public hospitals became major providers of insured care as well, and many sought to broaden their appeal to the paying public. They frequently serve as teaching hospitals for nearby medical schools, offering broad patient populations for teaching and research. Public hospitals also commonly lead in specialties like trauma and burns, care that can be underprovided in the private sector for fear of attracting less well-insured patients (Kassirer 1995).

In the enthusiasm for expanding the insurance safety net in the mid-1960s, many observers thought the provider safety net of public hospitals would no longer be needed (Friedman 1987a). Such optimism proved unfounded. Medicaid quickly dropped its initial aspirations to fund mainstream access for all the poor, and the extent of insurance coverage has been dropping nationwide since the early 1980s, although the rate of uninsurance varies greatly by state and locality. Nationally, the number of uninsured has risen to 44 million people, about two-thirds of them poor or near poor, so demand for uncompensated safety net care has also risen.¹

During the 1990s, fiscal pressures on public hospitals began to intensify (Iglehart 1997; IOM 2000; Norton and Lipson 1998a). Since then, revenues have suffered because public programs and managed care have cut payment levels and because managed care and heightened competition have reduced admissions. Medicaid managed care has shifted patients to lower-priced settings, and other hospitals have competed more vigorously for Medicaid patients because cutbacks under private managed care have made Medicaid clients more attractive. Expenses are high because of the growth in the numbers of uninsured patients just noted. Public facilities also often have high costs as a result of caring for a low-income clientele with low health status, generally high staff-patient ratios, and often aging capital plants. Public hospitals also often have trouble responding to such challenges as nimbly as private competitors, as management flexibility and access to capital are harder to achieve under public ownership (Friedman 1987c; Siegel 1996). At the same time, localities are hard pressed to raise taxes (GAO 1986; Norton and Lipson 1998a).

For such reasons, since 1979, the numbers of public hospitals and public beds have declined markedly—faster than the corresponding figures for all hospitals (table 1; see also Needleman et al. 1997). More than one-third of public hospital beds have been lost, versus one-seventh of total beds; public hospitals' share of beds has dropped from more than one-fifth to about one-sixth. (These declines reflect both closures and shifts from public to private status.) Typically, public facilities in smaller, rural areas have been most at risk (Ormond 2000). Historically, it was unusual for large urban public hospitals to cease operations (Friedman 1987b), but they too are struggling.

Notes from this section

1. IOM (2000) assesses factors influencing safety net providers nationwide. The most recent estimate from the Census Bureau is that 44.3 million people were uninsured for all of 1998 (Campbell 1999). Holahan and Kim (2000) describe recent trends in rates of insurance coverage; recent rises in uninsurance are mainly attributable to declines in Medicaid coverage. The income distribution of the uninsured comes from unpublished data from the Urban Institute National Survey of America's Families (1997). Just under one-third of the uninsured have incomes below the federal poverty level (FPL), and two-thirds are below 200 percent of FPL.

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Disclaimer: The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.