Safety-Net Hospital Profitability Sinks as Demand Rises

The COVID-19 pandemic has put significant strain on safety-net hospital profitability, as explored in The Healthcare Divide, a new documentary from FRONTLINE, NPR, and American University’s Investigative Reporting Workshop.

“Why are safety-nets hit the hardest? Because our patients are vulnerable,” said Dr. Brad Spellberg, chief medical officer at LAC+USC Medical Center, in the documentary.

“We serve a community of working poor. We serve people who are working essential jobs. … We are expected to care for the patients the other hospitals won’t care for.”

While there is no official definition, safety-net hospitals treat underserved populations and will not turn away uninsured patients. Because these hospitals tend to have many patients whose costs are not covered by insurance, it can be extremely difficult for them to make a profit.

In addition, safety-net hospitals disproportionately treat communities of color, who have been hit particularly hard by COVID-19. Systemic health disparities have led to significantly higher death rates among the Black population during the pandemic.

“It’s a situation that has only been intensified by the COVID pandemic, as hospitals that treat more ‘profitable’ patients have often pulled further ahead, while many of those that treat more patients who are on Medicaid or are uninsured have fallen further behind,” FRONTLINE reported.

In June 2020, HHS allocated $10 billion from the Provider Relief Fund, part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, to safety-net hospitals. Despite the increased funding, the hospitals are still fighting to stay afloat.

Safety-net hospitals are in a unique situation: as more patients come through the door, their financial burden increases. While costs skyrocket, revenue is plummeting. As a result, some safety-net hospitals have been forced to close their doors, the documentary reports, leaving uninsured and underserved populations with even less health care options.

One of the biggest issues safety-net hospitals face is the lack of a formal definition. A 2020 report in the New England Journal of Medicine explains that “the absence of a clear definition for safety-net hospitals has made it difficult to effectively target pandemic-related resources.”

Despite initial funding under the CARES Act, which provided funds based on the number of COVID-19 cases in a hospital, “this allocation system didn’t account for the fact that safety-net hospitals had fewer resources than other hospitals at baseline and were therefore less able to respond to the pandemic early on,” the report stated.

Multiple funding adjustments and misunderstandings led to delays in safety-net hospitals receiving essential funds, which the report credits to the lack of a solidified definition of what constitutes a safety-net hospital.

Meanwhile the documentary points out that HCA Healthcare, one of the largest hospital systems in the US, made a $3.8 billion profit in 2020.

“It is a little unfathomable to me how a hospital system could be making a huge profit in the middle of the COVID pandemic,” said Spellberg in the documentary. “But honestly, nothing surprises me anymore.”