Early Impacts of the Recession on Health Care Safety Net Providers

Federal Stimulus Funding Helps Offset Losses in State, Local and Private Funding

News Release
Jan. 27, 2010

FURTHER INFORMATION, CONTACT:
Alwyn Cassil (202) 264-3484 or acassil@hschange.org

WASHINGTON, DC—While the recession increased demands on the health care safety net as Americans lost jobs and health insurance, the impact on safety net providers has been mixed and less severe-at least initially—than expected in some cases, according to a new study by the Center for Studying Health System Change (HSC) of five communities—Cleveland; Greenville, S.C.; northern New Jersey; Phoenix; and Seattle.

Federal stimulus funding—the 2009 American Recovery and Reinvestment Act (ARRA)—has helped safety net providers weather the economic storm, partially offsetting reductions in state, local and private funding, according to the study funded by the Robert Wood Johnson Foundation.

Enacted in February 2009, ARRA included higher matching funds for state Medicaid programs, increased funding to support hospitals serving disproportionate numbers of low-income and Medicaid patients, and additional grants to federally qualified health centers (FQHCs).

Given the recession’s severity, the impact of higher demand on safety net providers was not as great as might be expected in the five communities, the study found. To some extent, this reflects that safety net providers were experiencing increasing demand for care before the recession as employer-sponsored coverage declined and other providers’ reluctance to treat uninsured and Medicaid patients grew.

However, unemployment and uninsured rates will likely remain high for some time despite some signs of an economic recovery at the end of 2009, and greater demands on safety net providers likely will persist even as federal stimulus funding ends.

"Safety net providers have adopted strategies to stay financially viable, but many believe they have not yet felt the full impact of the deepest recession since the Great Depression," said Laurie E. Felland, M.S., an HSC senior health researcher and coauthor of the study with HSC Senior Fellow Peter J. Cunningham, Ph.D., HSC Health Research Assistant Genna R. Cohen; HSC Health Research Analyst Elizabeth A. November, J.D., M.P.H.; and RWJF Program Officer Brian C. Quinn, Ph.D.

Along with the injection of stimulus funding, other factors may have helped the safety net in the five communities. For example, federal expansion grants for community health centers during the past decade have increased capacity, and programs to help direct people to primary care providers may have helped stem the expected surge in emergency department use by the uninsured during the downturn.

The study’s findings are detailed in a new HSC Research Brief—The Economic Recession: Early Impacts on Health Care Safety Net Providers—available here. Between June and September 2009, a total of 45 telephone interviews were conducted with representatives of safety net hospitals, community health centers, free clinics and other knowledgeable observers in the five communities, as well as with national experts. Other key findings include:

• While many FQHCs have benefited from both ARRA funding and federal expansion grants over the past 10 years, many free clinics were facing more serious financial strains because they were ineligible for stimulus funding and are more dependent on private donations. Moreover, free clinics do not receive enhanced Medicaid reimbursements like FQHCs and other community health centers deemed federal "look-alikes."
• As state and local officials grappled with large budget deficits, safety net hospitals and community health centers were facing funding cuts that would offset gains from federal stimulus funding. All five states reduced or proposed reductions in optional Medicaid services for adults—including dental, vision, mental health, podiatry and prescription drug coverage.
• Many providers were trying to become more efficient. Most providers reported trying to control labor costs, a significant portion of their operating budgets. Varied degrees of layoffs or reductions through attrition were reported in all of the communities, especially at safety net hospitals and free clinics, although wage freezes were more common.
• The recession has produced some benefits for providers. In some cases, the costs of leasing facilities have declined significantly, and providers that were expanding typically have found larger, more qualified applicant pools for financial and administrative positions, which they attributed to job losses in other sectors. Also, employees were more likely to stay in their positions than risk going elsewhere, reducing recruiting and training costs.
• Although safety net providers in the five communities so far have weathered the economic recession, the downturn has placed additional strain on already-limited capacity and tenuous financial situations. Despite expansions over the past decade, many health centers were at full capacity, limiting their ability to accept new patients and causing longer waits for care. Further, the effects of the recession are highly localized, and some safety net hospitals in other communities have encountered significant financial problems and service cutbacks.

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The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nation’s changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is funded in part by the Robert Wood Johnson Foundation and is affiliated with Mathematica Policy Research.