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ForcQs HffQcting SufQty NQ! Providers in ~ Changing Health Core Environment Several recent studies have warned that changes in the health care marketplace may threaten the ability of safety net providers to continue serving the poor and uninsured (Altman et al., 1998; Andrulis, 1997; Baxter and Mechanic, 1997; Fishman and Bentley, 1997; Lipson and Naierman, 1996; Norton and Lipson, 1998~. To date, safety net providers have dem- onstrated considerable resiliency in maintaining their missions of caring for uninsured and other vulnerable populations. Recent changes within the health care marketplace, however, threaten to intensify pressures on safety net Providers. This chanter Provides a detailed examination of the J 1 1 1 ~ rr ~ ~ ~ ~ 1 ~ r- 1 1 1 - ~ 1 e1 1 1 many forces affecting safety net providers fiscal viability and their ability to care for uninsured and other vulnerable populations. There are major and increasing variations in states' capacities and willingness to support care for vulnerable populations. The organization, financing, and adequacy of the health care safety net varies substantially from state to state and from community to community. In the absence of federally sponsored universal insurance coverage, care for uninsured and other vulnerable populations is increasingly influenced by state and local policies. The wide variation in the structures and the conditions of the safety nets across states, however, make national tracking and compara- tive analysis in this area difficult. The sources and intensities of the pressures facing individual pro- viders depend on the level of demand, amount of support, and the struc- ture of the safety net in a community. The structural characteristics of the 81

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82 AMERICA'S HEALTH CARE SAFETY NET: INTACT BUT ENDANGERED safety net and the factors that affect safety net providers are illustrated in Figure 3.1. The horizontal continuum of Figure 3.1 depicts the major structural factors that influence local safety net systems. Essential factors that deter- mine the structure of local safety nets include The degree of formal or informal organization of the safety net, The extent to which care for Medicaid beneficiaries and uninsured individuals is concentrated among a few providers or shared among many, The degree to which the safety net system is comprised of public or private entities, The level of price competition, and The extent of Medicaid managed care penetration. The safety net system itself can be formal in its organization, relying on horizontal or vertical networks, public authorities, or other defined governance structures, or it can be informal, relying on the actions of individual providers to cover care for uninsured and other vulnerable Demand Number of Medicaid Patients with uninsured patients special needs l Shared/ dispersed . , Structural Factors Concentration of care for: Uninsured Medicaid Special needs Public system Non-price competitive Minor Medicaid managed care penetration l T T Federal State and Medicaid policy/$ local payment policy/$ rates Support FIGURE 3.1 Factors affecting the health care safety net. l l Community attitudes toward the safety net Private system Price competitive Substantial Medicaid managed care penetration

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FORCES AFFECTING SAFETY NET PROVIDERS 83 populations. In some communities one or two publicly subsidized pro- viders, such as a large public hospital or a hospital partnered with a well- defined network of community health centers (CHCs), may be responsible for nearly all of the health care for the uninsured population. In other communities health care for uninsured individuals might be widely dis- persed among many providers, including not-for-profit providers and other mission-driven hospitals. Highly concentrated safety net systems tend to rely on public providers and tight organizational structures, whereas widely dispersed systems are more likely to comprise a mix of public and private providers and rely on less formal organizational struc- tures. The level of price competition in a community and the degree of Medicaid managed care penetration can also significantly shape local safety net systems and influence their stability. Safety net systems are neither uniform nor static; that is, no single paradigm describes them perfectly and no single approach will sustain them. Moreover, it is important to understand the structural aspects of each safety net to predict the effects of major forces of change on its future viability. The paragraphs below offer three examples of different safety net structures, those in Miami, Florida; Philadelphia, Pennsylvania; and Boston, Massachusetts. Miami's safety net is an example of a moderately concentrated, for- mally organized public safety net in a community with large numbers of uninsured people. Dade County, where Miami is located, is a highly com- petitive, mature managed care market for both commercial and Medicaid businesses (Lipson et al., 1997~. Jackson Memorial Hospital, a public teach- ing hospital, is the major provider of care for vulnerable populations. It not only provides services at its own locations but also is responsible for operating the clinics of the local health department. Health care for indi- gent populations in Miami as well as in many other parts of the state is supported primarily by local taxing districts. Jackson Memorial Hospital has recently reached out to a larger community of providers by affiliating with CHCs and other hospitals, although there are still some safety net providers that are not part of the Jackson Memorial Hospital network. On the other end of the continuum is Philadelphia, a city with large uninsured and Medicaid populations but without a publicly owned hos- pital since 1978. With the closing of Philadelphia General, the city's nine public health stations were converted to community-based primary care programs. The health department clinics, along with six federally quali- fied health centers (FQHCs), have been participating in some form of managed care since the mid-1980s. Philadelphia's inpatient safety net is informally organized and is dispersed among several academic health centers and other public and private hospitals. Philadelphia has an active health care market that offers some degree of choice to vulnerable popu-

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84 AMERICA'S HEALTH CARE SAFETY NET: INTACT BUT ENDANGERED rations and high-price competition. As a result, the safety net comprises multiple competing networks, each of which provides some care to the safety net population (National Health Policy Forum, 1998~. Boston is a market with significant managed care penetration. Prompted by state Medicaid policies, Boston has an array of small and large, public and private not-for-profit organizations that work together to craft the local safety net. In this configuration, the treatment of vulner- able populations is dispersed among CHCs, private not-for-profit pro- viders, and the public hospital systems organized into relatively formal networks. CHCs have formed networks, have sponsored health plans, and have entered into multiple affiliations to strengthen their ability to serve the indigent population. Concurrently, Boston City Hospital merged with Boston University Medical Center to create the Boston Medical Center with the expectation that an integrated organization would be better able to provide continued services to vulnerable populations. Local health center networks have linked with the medical center to provide a cohesive, integrated system of care for vulnerable populations. To sup- port these efforts, organizations can receive funds from a pool of funds for state-sponsored health care for the indigent population (Baxter and Feldman, 1999~. These examples provide only snapshots of very complicated safety net systems. They are intended simply to illustrate the local variability of safety net systems. Although virtually all local safety net systems rely on a core group of providers for either ambulatory care, inpatient care, or both, no single structural configuration of the safety net is right for all communities. It is clear, however, that the way in which a local safety net is structured will have a lot to do with how it adapts to the major forces of change described in the remainder of this chapter. The primary challenges that currently affect safety net providers can be grouped into three areas: (1) increasing demand for care by uninsured and other vulnerable populations, (2) uncertain public support (federal, state, and local) for safety net providers, and (3) the changing structure and environment of the broader health care system and the resulting disequilibrium caused by changes in the payer mix. This chapter exam- ines each of these forces in detail. INCREASING DEMAND FOR CARE The increasing demand for safety net care can be traced to several phenomena, including trends in the number of uninsured individuals (including the length of time that they remain without coverage and the geographic variation in the number of uninsured people across the country), the number of underinsured Americans, the impact of welfare

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FORCES AFFECTING SAFETY NET PROVIDERS 50 - Q o ~ 25- o o . _ 31.8 85 33 6 34 3 35.6 36 3 38 3 39 3 39 4 40 3 43.1 43 9 oil I I I I I I I I I I I 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 Year FIGURE 3.2 Number of uninsured nonelderly Americans (in millions), 1987 to 1998. Medicaid and uninsured data from 1998 are not completely consistent with previous years. Starting with the March 1998 Current Population Survey (CPS), the Bureau of the Census modified its definition of the population with Medicaid and the population without health insurance. Previously, individuals covered solely by the Indian Health Service were counted in the Medicaid population. Beginning with data from the 1998 CPS, individuals covered solely by the Indian Health Service are counted as uninsured. SOURCE: Fronstin (2000~. Reprinted with permission of the Employee Benefit Research Institute. reform, and the limited success of recent efforts to expand insurance coverage. Trends in the Number of Uninsured The level of demand for safety net care is driven most directly by the sheer number of persons without health insurance in the local area. Despite the overall strength of the U.S. economy, the number of uninsured nonelderly Americans increased by 30 percent between 1988 and 1998, from 33.6 million to 43.9 million (Figure 3.2~. During that time, the per- centage of uninsured Americans rose from 15.5 to 18.4 percent of the nonelderly population.] Nearly all the increase between 1996 and 1998, from 17.7 to 18.4 percent, was accounted for by adults ages 18 to 64. 1These figures represent the most recent data available, which are from the March 1998 Supplement of the Current Population Survey (CPS) (Fronstin, 2000~.

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86 AMERICA'S HEALTH CARE SAFETY NET: INTACT BUT ENDANGERED Several factors contributed to the growing number of uninsured indi- viduals in the United States and thus the increased demand for free ser- vices faced by safety net providers. These are delineated in the following sections. Decline in Employer-Sponsored Coverage The proportion of nonelderly Americans receiving health insurance through their employers declined 4.1 percent between 1988 and 1998, with the greatest declines being among low-income workers and families. More than 83 percent of those without insurance in 1998 lived in families headed by workers (Fronstin, 2000~. The proportion of nonelderly em- ployees who receive their health insurance from employers declined sharply from 69.2 percent in 1987 to a low of 63.5 percent in 1993, but it then increased to 64.2 percent in 1997, according to the Census Bureau. Slightly more employers are offering health insurance, but fewer workers are taking it either because the employee's portion of the coverage is too costly or because of a lack of eligibility due to waiting periods or number of hours worked. However, the largest number of uninsured are salaried workers whose employers do not sponsor health insurance.2 Exacerbating the erosion of employer-based coverage is the rapid growth of part-time, contract, and temporary jobs that typically offer no benefits. In 1997, 29 percent of the U.S. workforce held "nonstandard" jobs that were temporary, part-time, contract, or day-labor positions (Mishel et al., 1998~. Figure 3.3 shows that over the last decade the per- centage of low-wage workers who had access to employer-sponsored insurance through their own job or that of a family member decreased. Even greater declines occurred in the percentage of low-wage workers who had access to insurance and were actually covered by it (i.e., family take-up rate). Workers with incomes of between 100 and 200 percent of the federal poverty level,3 often referred to as the "near poor," are especially vulner- able. Caught between ineligibility for Medicaid and inadequate resources 2virtually all large employers offer health insurance coverage to their full-time workers, although only 60 percent of small businesses do so. The most recent 1999 Annual Employer Health Renews survey found little change in the number of plans that offer health insur- ance coverage over the last 2 years Kaiser Family Foundation/Health Research and Educa- tional Trust, 1999~. 3The federal poverty level in 1997 for a family of three with two adults and one child was $12,919 and for a family of three with one adult with two children was $12,931; 300 percent of the poverty level is the equivalent of $39,000. The median family income in 1997 for a family of three was $46,783 tDalaker and Naifeh, 1998~.

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FORCES AFFECTING SAFETY NET PROVIDERS 20 ~9 a, 1 5 1 a) 10 .~ 5 s . _ o _5 -10 87 Hourly Wage All Workers $15 -15 0.4 -4 -5 -7 -0.2 Access cD Family Take-Up Rate FIGURE 3.3 Employers offering health insurance and worker participation, 1987 to 1996, by wage of workers. SOURCE: O'Brien et al. (1999~. Calculations based on data from Cooper and Schone (1997~. Reprinted with permission of the Insti- tute of Health Care Research and Policy. to buy their own insurance, the near poor run the highest risk of being uninsured. In 1997 a third of individuals in families with incomes less than 200 percent of the federal poverty level were uninsured, whereas just 9 percent of those with family incomes above 300 percent of the federal poverty level were uninsured (O'Brien et al., 1999~. It is precisely these low-income uninsured families who most often rely on safety net providers for their health care. The rising number of uninsured individuals at a time when unemployment rates are approaching a 30-year low does not bode well for the future unless there is a dramatic change in national policy (Kuttner, 1998~. The demand for uncompensated care and the need for safety net services in this environment promise to increase and accelerate. Decline in Public Coverage Since 1993, increases in the number of uninsured individuals have been driven by declines in public coverage (Fronstin, 1999~. Although Medicaid covers many low-income families who meet program eligibility requirements, a large number of eligible families do not gain access to

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o . Q o o A o rim 88 AMERICA'S HEALTH CARE SAFETY NET: INTACT BUT ENDANGERED 18.3 18.4 17.0 17 3 171 17,~__ 14.8 15.5 15.7 16.1 16.3 8.6 8.7 8.8 11.8 12.5 12.5 No Health Insurance Medicaid 11.0 104 1 987 1 988 1 989 1 990 1 991 1 992 1 993 1 994 1 995 1 996 1 997 1 998 Year FIGURE 3.4 Trends in Medicaid coverage and a lack of health insurance cover- age, 1987 to 1998. Medicaid and uninsured data from 1998 are not completely consistent with previous years. Starting with the March 1998 Current Population Survey, the Bureau of the Census modified its definition of the population with Medicaid and the population without health insurance. Previously, individuals covered solely by the Indian Health Service were counted in the Medicaid pop- ulation. Beginning with data from the 1998 CPS, individuals covered solely by the Indian Health Service are counted as uninsured. SOURCE: Fronstin (2000~. Reprinted with permission of the Employee Benefit Research Institute. coverage. In 1998 less than half (44.8 percent) of nonelderly Americans with family incomes below the federal poverty level were covered by publicly sponsored health insurance.4 Declines in public coverage are especially important to safety net providers since publicly insured indi- viduals make up a large proportion of safety net providers' paying patient base. Declines in public coverage are apt to have a large effect on safety net providers' bottom line. Figure 3.4 illustrates the changing trends in Medicaid coverage and the number of uninsured individuals from 1987 to 1998. 4According to March 1999 CPS data, 41.6 percent of nonelderly respondents with family incomes below the federal poverty level were insured by Medicaid, with the remaining 3.2 percent accounted for by other sources of public coverage, including Medicare, the Civilian Health and Medical Program of the Uniformed Services, the Civilian Health and Medical Program of the Veterans Administration, and U.S. Department of Veteran's Affairs health insurance (Fronstin, 2000~.

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FORCES AFFECTING SAFETY NET PROVIDERS Growth in Length of Time Without Insurance 89 The demand for uncompensated care from safety net providers also is affected by the length of time that uninsured individuals remain without coverage. Point-in-time estimates or "snapshots" of the number of unin- sured, such as those generated by the Current Population Survey (CPS), must be placed in context. If the average length of time that each unin- sured person remains without coverage grows, overall demand for un- compensated care can also be expected to grow. An analysis of the 1994- 1995 Survey of Income and Program Participation data found that approximately half of all spells without health insurance lasted for 8 months or longer,5 and about a third of all uninsured individuals are uncovered for the entire year (Copeland, 1998~. This subgroup of chroni- cally uninsured individuals is especially likely to depend on safety net providers for health care. Geographic Variation in the Number of Uninsured Although national trends are clearly troubling, it is the distribution of uninsured families across states and local communities that most directly determines the pressure that individual safety net providers will face. As seen in Figure 3.5, uninsured Americans are heavily concentrated in the southwestern and south-central states. In 12 states,6 more than 20 percent of the population is uninsured (Fronstin, 2000~. The variation in the concentration of uninsured individuals is more dramatic when comparing different metropolitan areas. According to the March 1999 CPS data, the Houston, Texas, metropolitan area had the highest percentage of uninsured nonelderly residents in 1998, with more than 30 percent, followed by Los Angeles, California, with more than 29 percent and Miami, Florida, with 25 percent (Fronstin, 2000~. Safety net providers in these metropolitan areas are likely to face much greater de- mand for uncompensated care than those safety net providers located in areas with fewer uninsured individuals. Several factors explain such variation. Perhaps most importantly, immigrant populations both legal and illegal immigrants are highly concentrated in a handful of states. Three states (California, New York, and Texas) account for 64 percent of the estimated 5 million undocumented immigrants and 57 percent of the 5The median spell of 8 months is longer than that reported in earlier studies by Bennefield (1996) and Swartz et al. (1993), which found the median spell without insurance to be approximately 6 months. 6Arizona, Texas, California, New Mexico, Nevada, Mississippi, Montana, Arkansas, Loui siana, Oklahoma, Florida, and West Virginia.

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90 AMERICA'S HEALTH CARE SAFETY NET: INTACT BUT ENDANGERED 11 _ - ~603, at Percent Uninsured (states) 20.9to27.7(12) ~ 17.1to19.7(12) 13.5 to 16.6 (14) ~ 10.3 to 13.2 (13) FIGURE 3.5 Variations in percentage of nonelderly uninsured among U.S. states and the District of Columbia, 1998. SOURCE: Unpublished calculations by A. Shields based on Current Population Survey data presented in Fronstin (2000~. Reprinted with permission of the Institute of Health Care Research and Policy. legal immigrants in the United States.7 Changes enacted in the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA; P.L. 104-193) of 1996, discussed in greater detail below, have increased the number of legal immigrants who are ineligible for publicly sponsored health insurance. Safety net providers in states with large immigrant populations will thus experience greater demand for uncompensated care than providers in other states. 7These states account for only 26 percent of the total u.s. population Us. Bureau of the census, 1999~. Calculations by A. Shields, Institute for Health care Research and Policy, Georgetown university, based on Immigration and Naturalization service estimates as of April 1996 See Immigration and Naturalization service, 2000a; Immigration and Natural- ization service, 2000b).

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FORCES AFFECTING SAFETY NET PROVIDERS 91 The number of uninsured individuals and the demand for free care are also directly affected by individual states' Medicaid eligibility rules, the breadth and depth of their Medicaid benefits packages, and their payment rates. In states with meager benefits packages, safety net providers may provide free services to individuals who have Medicaid coverage but who need services not included in the benefits package. Lastly, the relative wealth and the tax base of each state vary greatly. A study by Marquis and Long (1997) showed serious geographic disparity between the distribution of uninsured individuals and the distribution of the abil- ity to finance subsidized health insurance for them. States with the largest number of uninsured people, which would be required to tax their resi- dents more heavily to have a significant impact on the problem, are pre- cisely the states with lower income bases to begin with (Marquis and Long, 1997~. Underinsurance Demand for uncompensated care comes not only from uninsured individuals but also from those whose insurance is inadequate to cover the costs of their health care needs. As many as one of every eight families (12 percent) without elderly members spent, on average, more than 10 percent of the family income on out-of-pocket health care costs and pre- mium cost-sharing in 1997; families with members over age 65 spent 50 percent of the family income on health-related costs (Shearer, 1998~. An earlier study found 18.5 percent of the U.S. population to be underinsured in 1994 (Short and Banthin, 1995~. Depending on the definition of under- insurance that one uses, between 10 and 25 percent of those with health insurance have inadequate coverage to protect them against financial risk. In times of medical crisis, many of these individuals are unable to pay for uncovered services and must rely on safety net providers for free care. The committee also read and heard evidence during its workshops and deliberations suggesting that rising drug costs are leading many unin- sured and low-income insured individuals to seek care from safety net providers where drugs may be free or heavily subsidized. Findings from a 1997 United Hospital Fund survey on the access of uninsured indi- viduals to outpatient services in New York City showed that 74 percent of public hospitals, 39 percent of financially distressed hospitals, and 47 percent of FQHCs provided discounts on drugs, whereas 8 percent of voluntary hospitals provided such discounts (United Hospital Fund, 1998~.

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FORCES AFFECTING SAFETY NET PROVIDERS TABLE 3.5 Trends in Federally Qualified Health Center Users, 1990-1998 121 Number (percent) of Users (in millions) Users 1990 1995 1996 1997 1998 Total 5.84 (100) 8.05 (100) 8.09 (100) 8.25 (100) 8.66 (100) Medicaid 1.87 (32) 3.14 (39) 2.77 (34) 2.82 (34) 2.84 (33) Medicare 0.58 (10) 0.75 (9) 0.63 (8) 0.63 (8) 0.62 (7) Other insurance 1.17 (20) 1.38 (17) 1.45 (18) 1.52 (18) 1.645 (19) Uninsured 2.22 (38) 2.79 (35) 3.24 (40) 3.33 (40) 3.55 (41) NOTES: The 1990 data are only for community and migrant health centers; the 1995 data for CHC users include an estimate for homeless patients; the data for 1996-1998 include all Bureau of Primary Health Care grantees. The 1990 and 1995 data for FQHC users by payer are from grant applications; data for 1996-1998 are from Uniform Data System reports. SOURCE: Unpublished tabulations of Uniform Data System data by the Health Resources Services Administration, U.S. Department of Health and Human Services. TABLE 3.6 Trends in Federally Qualified Health Center Revenues per Patient User, 1990-1998 Revenue per User 1990 1995 1996 1997 1998 Total revenue/total user $212 $306 $340 $345 $359 Medicaid revenue/Medicaid user 136 260 338 349 369 Federal grants/uninsured user 235 249 243 230 231 Noninsurance patient care revenuea/uninsured user 273 319 308 288 297 aEstimated by adding revenues from federal grants, patient payments, state/local/other sources and subtracting the portion of total revenues (15 percent) attributable to social and enabling services. SOURCE: Calculated from data in Tables 3-1 and 3-4, Bureau of Primary Health Care, Health Resources and Services Administration, U.S. Department of Health and Human Services. implementation of FQHC cost-based reimbursement. There was also a big jump between 1995 and 1996, from $260 to $338 in 1996, partially due to continuing FQHC implementation but also due to the 12 percent de- crease in Medicaid users in that year. At this point participation in Medic- aid managed care was minimal in most areas and its impact had yet to be

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122 AMERICA'S HEALTH CARE SAFETY NET: INTACT BUT ENDANGERED felt. Thereafter, Medicaid revenue per Medicaid user grew slowly to $349 in 1997 and $369 in 1998. In an effort to understand the dynamics behind these trends, MDS Associates analyzed components of Medicaid revenues for the Health Resources and Services Administration (HRSA). They found that in 14 states, FQHCs received unusually large reconciliation payments in 1998 which were attributable to multiple prior years, and thus were unlikely to be part of a past or future trend. These payments accounted for $37 million, or 10 percent of all health center Medicaid revenues in the relevant states. Excluding this sum from 1998 Medicaid revenues in all states would reduce Medicaid revenue per user to $356 only a 2 percent increase over 1997, less than an inflation adjustment (MDS Associates, 1999~. Growth in revenue per uninsured user was slower than for Medicaid in the early l990s, slowing or in some cases reversing in more recent years. Federal grants, the major source of revenue for care for people lacking coverage, totaled $235 per uninsured user in 1990 and $249 in 1995, a scanty increase over the five-year period. Thereafter they decreased to $243 in 1996 and $230 in 1997 and rose slightly to $231 in 1998. A more inclusive method of estimating the funds available for medi- cal care to uninsured patients is to add all non-insurance revenue sources federal grants, patient sliding fee payments, and state, local and other grants and then, since these funds are also the source of social support and enabling services for all FQHC users, to subtract out the amount attributable to such services. This yields larger amounts but a pattern not dissimilar to that found for federal grants alone. Non-insurance revenues per uninsured user were $273 in 1990, rose to $319 in 1995, fell to $308 in 1996 and $288 in 1997, and rose slightly to $297 in 1998. In sum, in the early part of the decade Medicaid and non-insurance revenues balanced each other out as components of total revenues, so that the total revenue increased from $212 per user in 1990 to $306 in 1995 and $340 in 1996. As with the components, growth in total per patient revenue has flattened in recent years, to $345 in 1997 and $359 in 1998. Analysis of possible reasons for shifts in revenues and utilization by HRSA did not reveal consistent relationships with state variables, includ- ing changes in the number of individuals eligible for Medicaid and changes in Medicaid expenditures for ambulatory care. Some centers that lost Medicaid patients or revenues were in states where Medicaid enroll- ments or expenditures for ambulatory care increased, while others were in states where enrollments or expenditures decreased. However, this analysis also suggested that national and state figures might be masking more targeted distress: centers with 30 percent or more of their patients in Medicaid managed care averaged losses in Medicaid revenues per Medic- aid user of 13 percent (Lewis-Idema and Bryant, 1998~. Revenue losses are

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FORCES AFFECTING SAFETY NET PROVIDERS 60 - 50- o CO 40- a) a) 30- a) 20 - 10 - 123 + CHC Rates _ National Rates 26 31 32/ 49 / ~ 14 14 1990 1991 1992 Base Year 1993 1994 1995 1996 1997 Year FIGURE 3.15 Percentage growth in numbers of uninsured compared with 1990 levels: rates for CHCs versus national rates. SOURCE: Health Resources and Services Administration calculations based on Current Population Survey and Bureau of Primary Health Care Annual Reporting Systems for 1990 and 1997. likely to become more prevalent as managed care participation grows and FQHC protections are phased out. The ability of CHCs to succeed in future years is directly related to their ability to respond to the increasing number of uninsured patients that they serve in a more competitive, demanding environment. The num- ber of uninsured patients served by FQHCs has grown at nearly double the rate of the number of uninsured persons in the general population since 1990 (see Figure 3.15~. In addition, there is evidence that a signifi- cant proportion of the new uninsured patients had previously used other providers who were now demanding payments they could not make (Lefkowitz and Todd, 1999~. The rising number of uninsured patients in the absence of revenue streams to support such care could threaten the fiscal viability of CHCs. Local Health Departments Since most LHDs do not provide the full range of services and hours of operation typically specified in managed care contracts, their safety net role has been affected by Medicaid managed care. As Medicaid managed

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124 AMERICA'S HEALTH CARE SAFETY NET: INTACT BUT ENDANGERED care has become more widespread, it has been more difficult for LHDs to participate in the Medicaid market and thus garner Medicaid revenues to offset the costs of caring for uninsured patients. In many instances, LHDs lack the required infrastructure, such as 24-hour coverage or provision of the full range of primary care services, needed to secure Medicaid man- aged care contracts. Although some LHDs have been successful in con- tracting with Medicaid HMOs, many more have encountered barriers to inclusion in managed care networks. The inability of some health departments to respond to these require- ments combined with a preexisting trend to focus on population-based public health activities has led many health departments to reduce or eliminate direct health care services. The extent of this shift away from the direct provision of primary care services was confirmed in national survey of 413 LHDs conducted in March 1999 (Shields et al., 1999~. The LHDs surveyed included all LHDs in a jurisdiction with a population of greater than 100,000 (urban LHDs) as well as a national sample of LHDs with smaller jurisdictions (nonurban LHDs). Among LHDs that were provid- ing comprehensive primary care services in 1995, 22.9 percent of urban and 17.5 percent of nonurban34 LHDs had stopped providing such ser- vices by 1999 (Shields et al., 1999~. Although some LHDs began providing direct health care services during the period from 1995 to 1999,35 many more curtailed such programs, particularly in the area of services for women and children. Nearly 20 percent of urban LHDs and 9.4 percent of nonurban LHDs that provided comprehensive primary care services to women in 1995 had eliminated these services by 1999. Approximately 20 percent of urban health departments and 15.5 percent of nonurban health departments had eliminated comprehensive primary care services for chil- dren over the same period. These figures most likely underestimate the net loss of services provided to Medicaid and uninsured patients since they reflect absolute curtailment only and do not capture reductions in volume. The primary reason for the elimination of direct care services differed among urban and nonurban LHDs. For urban agencies, the decision to stop providing direct primary care services most often reflected a shift in 34Nonurban LHDs refer to those in jurisdictions with populations of less than 100,000 and include members of the National Association of city and county Health Officials ~NACCHO'. Urban health departments include those LHDs in jurisdictions with popula- tions of 100,000 or more, all of which are CityMatCH members and many of which are NACCHO members "Shields et aL, 1999~. 35some LHDs actually began providing comprehensive primary care services, particu- larly to women and children, during the period from 1995 to 1999, although many more eliminated such services "Shields et aL, 1999~.

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FORCES AFFECTING SAFETY NET PROVIDERS 125 mission and focus, with inadequate funding or inadequate Medicaid reim- bursement being the second most prevalent reason offered. Inadequate funding and inadequate Medicaid reimbursement were the primary rea- sons cited by health departments that serve jurisdictions with less than 100,000 people (Shields et al., 1999~. Few public health officers reported having mechanisms in place to track whether former clients were receiv- ing health care services elsewhere or were going without health care as a result of the reduction or elimination of services in their areas. In many areas, LHDs not only provide primary care but also provide other health care services that may not be readily available elsewhere. These, too, may be affected by reduced Medicaid revenues and payment rates and the increasing number of uninsured clients. Since 1995 urban LHDs reported decreases in the number of specific services provided in all areas except human immunodeficiency virus (HIV) infection and Acquired Immune Deficiency Syndrome (AIDS) treatment (Shields et al., 1999~. The trend among nonurban LHDs is quite different. Between 1995 and 1999, there was a net increase in direct service programs for a number of areas, including HIV infection and AIDS treatment, sexually trans- mitted disease (STD) treatment, adult immunizations, family planning, substance abuse services, and dental health treatment.36 This trend reflects the reliance on LHDs for a significant amount of direct services in areas with fewer providers. In many instances, LHDs have not curtailed direct services altogether but rather have delegated the provision of specific services to outside organizations. A recent study of the privatization of services provided by LHDs found that 57 percent of the 380 LHDs surveyed now delegate the direct performance of at least one service that was formerly performed within the health department (Keane et al., 1999~. Approximately half (52 percent) have contracted out at least one public health service from the very inception of the service. Personal health services are most commonly privatized; 67 percent of all services privatized over the last decade were some form of personal health services. The primary reasons cited for privatization were lack of capacity or expertise, cost or efficiency, low volume, and a desire to collaborate with and not compete with other providers (Keane et al., 1999~. LHDs that serve the largest jurisdictions were 4.3 times more likely to privatize services than LHDs that serve the smallest jurisdictions (Keane et al., 1999~. 36Interestingly, more than 40 percent of local health departments surveyed began pro- viding direct dental services, 14.6 percent began providing HIV infection- and AIDS-related services, and 4.7 percent began offering STD treatment services since 1995 (Shields et al., 1999~.

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126 AMERICA'S HEALTH CARE SAFETY NET: INTACT BUT ENDANGERED Few data are available that track trends in the volume of services provided by LHDs and the insurance status of the clients served. It is difficult, therefore, to assess the impact of Medicaid managed care and state and local support on the role of LHDs in providing safety net care. Research shows that between 1992 and 1996, the number of users of Medicaid Early Periodic Screening, Detection, and Testing services in Ala- bama fell 24 percent, whereas the number of users of maternity services declined by 15 percent (Wall, 1998~. In Florida, health departments expe- rienced a 19 percent reduction in clients between 1991 and 1996. In Missis- sippi health departments provided 57 percent of the state's prenatal care services in 1993, but this fell to less than 50 percent in 1996 following implementation of its Medicaid primary care case management plan. The extent to which these service reductions at LHDs represent a shift of volume to other providers or a net loss of safety net services to vulnerable populations in the community is unknown. CONCLUSION In summary, the combined forces of increasing demand for uncom- pensated care because of the rising number of uninsured people, uncer- tain revenues from federal, state and local sources, and increased price competition and managed care penetration have placed safety net pro- viders in a highly tenuous financial position. Despite a robust economy and budget surpluses at the federal and state levels, the number of Ameri- cans without health insurance and thus the number who rely on safety net providers for their health care continues to grow. At the same time, Medicaid managed care and increased competition have more generally led to increased competition for Medicaid patients and thus have threat- ened Medicaid revenues for safety net providers. The hospitals, health centers, clinics, and LHDs that continue to serve large numbers of uninsured patients are coping with fewer paying Medic- aid patients and restrictions on payments for the Medicaid patients who remain. The stability and adequacy of the revenue streams that support such care are further threatened by the future impact of reduced DSH payments to hospitals, the end of cost-based reimbursement for FQHCs, and the unreliability of local support. Despite these challenges, safety net providers have demonstrated resiliency and an ability to participate in the managed care marketplace. Few, however, have secured long-term stability, even as the number of uninsured individuals continues to rise and demand for charity care is becoming more acute. The impacts of these forces of change on the health care safety net demand close monitoring. At risk is the availability of needed medical care for the nation's 44 million people who are uninsured.

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