Strained local and state government finances among current realities that threaten public hospitals' profitability

This study demonstrates that some safety-net hospitals--those that provide a large share of the care to low-income, uninsured, and Medicaid populations--survived and even thrived before the recent recession. We analyzed the financial performance and governance of 150 hospitals during 2003-07. We found, counterintuitively, that those directly governed by elected officials and in highly competitive markets were more profitable than other safety-net hospitals. They were financially healthy primarily because they obtained subsidies from state and local governments, such as property tax transfers or supplemental Medicaid payments, including disproportionate share payments. However, safety-net hospitals now face a new market reality. The economic downturn, slow recovery, and politics of deficit reduction have eroded the ability of local governments to support the safety net. Many safety-net hospitals have not focused on effective management, cost control, quality improvement, or services that attract insured patients. As a result, and coupled with new uncertainties regarding Medicaid expansion stemming from the recent Supreme Court decision on the Affordable Care Act, many are likely to face increasing financial and competitive pressures that may threaten their survival.