Industry Changes Put Financial Pressure on Washington Health Care Market
From 1995 to 1998, researchers at the Urban Institute conducted a study of the District of Columbia's 11 major acute-care facilities, focusing also on the Medicaid system and long-term care for the elderly.
The research team also explored the factors contributing to the local health care problems and provided guidance to policy-makers on how to facilitate change.
The Urban Institute, based in Washington, is nonprofit, nonpartisan economic and social policy research organization.
- Two major factors were found to contribute to the financial woes:
- The large number of uninsured residents. Although Washington has more hospital beds, doctors and nurses relative to its population than the nation as a whole, many city residents cannot take full advantage of those resources.
The nearly 20 percent of residents without insurance often end up in hospital emergency rooms or were relegated to four hospitals willing to provide charity care.
- Cost-cutting measures by insurers. Strong market pressures brought about by declining demand for care from insured residents in Washington facilities and reduced payments from insurers and managed care plans were straining hospitals financially.
- The study warned that some hospitals might be forced to close, making it even harder for the uninsured to find care.
The Robert Wood Johnson Foundation (RWJF) supported this project through a grant of $150,000.
The problems of inner-city health care markets are different from those of their rural and suburban counterparts, and nowhere in the country are these problems more evident than in Washington, D.C. The D.C. hospital market, in particular, was in the midst of a severe financial crisis, with reports of potential hospital closures, downsizings, layoffs, and possible mergers appearing often in the local media. Two major issues dominated this fiscal crisis: excess bed capacity and shrinking net revenue per occupied bed. Occupancy rates in D.C. hospitals averaged just over 60 percent, with an estimated excess bed capacity of 23 percent of all beds. The declining demand reflected several trends: there was a general shift in population to the suburbs; more D.C. patients sought care in the suburbs, and fewer suburban patients sought care in the District; use of ambulatory care increased; and managed care organizations penetrated more of the market. At the same time, costs per bed were rising partly because of inflation and because hospitals had a higher proportion of specialized, more costly beds such as intensive care units. Revenue was falling, largely because public insurers had put in place tighter control policies, including Medicare's diagnosis-related payment system, and because the number of uninsured patients had grown.
How the District's 11 nonfederal, acute care hospitals approached their fiscal problems had serious implications for the local economy as well as for patient access to care. The D.C. hospital market was the second largest local employer. It was also the largest employer of a specialized labor force: the highly paid unskilled worker.
The purpose of this project was to document and analyze the factors contributing to the financial crisis in the D.C. hospital market and explore the potential effects of the crisis on the local economy and on patient access to care. As its research progressed, the project team at the Urban Institute decided that it also needed to study the District's Medicaid program and long-term care sector in order to produce a more complete picture of D.C.'s hospital market. The Urban Institute is a nonprofit policy research organization based in Washington, D.C., which investigates social and economic problems confronting the nation and analyzes efforts to solve these problems. It contributed $28,000 toward the project.
The study relied on two sources of information:
- Existing data, which the project used to chart trends in the health care sector, hospital utilization and financial status, and the characteristics of client populations. The investigators first compiled a chronology of events in the health care sector, using secondary sources including newspapers, journals, and business and trade publications. They focused on city hospitals, though they also chronicled events in the larger metropolitan area that affected the D.C. market. Trends for each hospital in critical indicators such as payor mix, market share, operating margin, and uncompensated care wereas compiled from 199196 data from the American Hospital Association and the D.C. Hospital Association. Investigators also compiled data from hospitals in the larger metropolitan area to compare the position of the D.C. hospitals with those of nearby Virginia and Maryland hospitals.
- Interviews, which revealed the motivation behind the activities documented in the media. Over a four-month period, project investigators interviewed the chief executive officers and other senior level staff at the 11 nonfederal acute care hospitals in D.C. on their plans and strategies for the future. The investigators also interviewed representatives of the D.C. Hospital Association, Medicaid HMOs, and local government; consumer advocates; committee members of the mayor's Health Policy Council; and local health sector observers to provide an outsider perspective on each of the city's hospitals and on the hospital sector as a whole. As it became clear that the problem of uncompensated care at D.C. hospitals could not be understood separately from the system of nonhospital care for the uninsured, investigators conducted interviews with primary care clinic officials as well as representatives of the D.C. Primary Care Association and the NonProfit Clinic Consortium. These interviews provided information on the connection between the high level of uncompensated care at hospitals and the inadequacy of the primary care system for the poor and the uninsured.
Hospitals. The bulleted points in this section come from The Changing Hospital Sector in Washington, D.C.: Implications for the Poor, a report published by the Urban Institute.
- All the interviewees agreed that in the near future the hospital sector in D.C. will look different, but there was little agreement on what shape it might take. Among the possible scenarios: continued independence and survival of all hospitals, with continued downsizing; one or more facilities shutting down or merging with another; and major realignment into hospital systems, both within the city and across borders.
- Several major forces shape the future of the D.C.'s health care sector, including:
- The transfer of authority for the city's public hospital from the District government to a quasi-public group.
- The rise in the number of residents covered under capitated plans and the enrollment of the majority of the Medicaid population in managed care.
- The change in the federal Medicaid match from 50 to 70 percent.
- The entry of a for-profit firm into the hospital market.
- Recent changes in Medicaid and Medicare at the federal level, including the availability of federal funds to support child health care.
- D.C. hospitals face increasing market pressures and will struggle financially. Those pressures have taken some of the fat from the system, which can help keep price increases down, but they could threaten access to health care for the uninsured if hospitals see cutting uncompensated care as a way to control costs.
- Uncompensated care cannot be blamed as the sole driving force behind hospitals' financial distress. There are both large providers of uncompensated care with relatively healthy balance sheets and financially unstable hospitals with relatively low uncompensated care burdens. However, location is an important determinant of uncompensated care. Therefore, a means must be found to share the financial burden of uncompensated care.
- Realignments are expected in the hospital sector, including the merger or closure of one or more facilities. Because of geographic distribution concerns, it matters which hospital facilities remain open. The D.C. government has an opportunity to influence the direction of change in the sector, though it must balance its competing roles. On the one hand, it acts as an advocate for its uninsured residents, and on the other, it acts as a supporter of local business and employment.
- The old methods of helping the uninsured are in jeopardy. Hospital charity care requirements are unenforceable and voluntary provision is declining. Subsidies create poor incentives for treating uninsured patients.
- New public policies for the uninsured are needed that are in sync with the new market orientation of general health policy. Efforts to increase access to insurance should continue with recent Medicaid expansions. For the uninsured, funds should follow patients so that they have a voice in the market. Not all the solutions to the uncompensated care problem need be hospital based.
Health care for low-income residents. The bulleted points in this section come from the Urban Institute report Health Care for Low-Income People in the District of Columbia.
- The District has a high level of Medicaid expenditures compared with the 50 states. A high percentage of residents have incomes below the federal poverty level and there is a high prevalence of health problems within the city.
- Medicaid expenditures are higher per enrollee for all eligible groups in D.C. than elsewhere. The high cost of health care and the inefficient structure of the District's program are key factors. There is more reliance on institutional care, such as nursing homes and hospitals, than on less expensive community-based options, such as home care and outpatient service.
- Growth in expenditures per enrollee has been below the national average. Between 1994 and 1996, D.C.'s spending per enrollee increased by 3.7 percent; the national increase during the same period was 7.3 percent. D.C.'s slower than average growth is largely the result of stabilized spending on the disabled and a drop in spending on the elderly since 1994.
- The District has moved toward mandatory managed care for Medicaid. While D.C. is following a national trend, it is too soon to evaluate the effect on access and expenditures.
- D.C. is considering a major expansion of Medicaid coverage to children and adults. Those whose income is less than 200 percent of the federal poverty level would qualify.
- The District has taken major steps toward resolving prior budgetary problems. In addition, the federal government has raised the Medicaid matching percentage from 50 to 70 percent.
Long-term care for the elderly. The bulleted points in this section come from the Urban Institute report Long-Term Care for the Elderly in the District of Columbia: Issues and Prospects.
- Almost all of D.C.'s District Medicaid long-term care expenditures for the elderly were for institutional care in 1996; only 2.6 percent of spending for the elderly was for home care, much less than the national average of 12.1 percent. A 1995 study ranked the District last, after all 50 states, in its progress toward home- and community-based services.
- The District spends $1,800 per elderly resident on long-term care, compared with $915 per elderly resident for the nation as a whole.
- Medicaid long-term care expenditures for the elderly grew at an average rate of 3.4 percent annually in D.C. from 1990 to 1996 well below the national growth rate of 9.1 percent over the same period.
- Fiscal crises and budget cutting have dominated long-term care and other services. Recent budget cuts should be restored and a minimum of $1.2 million should be added to the D.C. Office on Aging budget for services.
The report also made the following recommendations:
- The District needs to better coordinate services. It should consider establishing a staff liaison in the mayor's office or designating a lead agency on long-term care. In addition, new standards should be adopted for nursing homes and a licensure category established for assisted-living facilities.
- Home- and community-based services need to be expanded. A large percentage of long-term care spending is for nursing home care. Nonmedical residential facilities could play an important role in long-term care.
In addition to the three reports cited above, The Urban Institute published three reports, The Changing Hospital Sector in Washington, D.C.: Implications for the Poor, Health Care for Low Income People in the District of Columbia, and Long-Term Care for the Elderly in the District of Columbia: Issues and Prospects. The project team also prepared two reports for Mayor Anthony Williams' transition team: Long-Term Care, Elderly, and Adult Protective Services, and Re-engineering the Safety Net for the Era of Competition. Formal presentations were made to the news media, consumer and provider groups interested in long-term care; senior D.C. health officials, including representatives from the city's Medicaid office; and the board of the D.C. Health and Hospitals Public Benefit Corporation. In addition, numerous copies of the reports were requested by other groups, including the D.C. Hospital Association; the D.C. Primary Care Association, and local representatives of the Service Employees International Union, which represents area hospital workers.
AFTER THE GRANT
The Urban Institute has no plans to continue research in this area. As John Holahan, the project director, put it: "We had the biggest impact we could have had; it's now up to the people in the position to make policy change." Local health care policymakers have, in fact, expressed interest in a parallel study of the market for primary care services in the District using the hospital report and study methodology as a model. According to the Urban Institute, the new D.C. mayor and administration are developing a proposal for funding.
GRANT DETAILS & CONTACT INFORMATION
Project to Monitor Health Care Market Changes in Washington, D.C. and Their Implications
The Urban Institute (Washington, DC)
Dates: September 1995 to August 1998
John F. Holahan, Ph.D.
(Current as of date of this report; as provided by grantee organization; not verified by RWJF; items not available from RWJF.)
Books and Reports
Bovbjerg R and Ormond B. Re-Engineering the Safety Net for the Era of Competition, Report to Mayor Williams' Transition Team, Human Services Network, Health Care Financing Subcommittee. Washington, D.C.: Urban Institute, December 1998.
Ormond B, Blumberg L, Holahan J, Stevenson D, Wallin S, and Wiener J. Health Care for Low-Income People in the District of Columbia. Washington, D.C.: Urban Institute, April 1999.
Ormond B and Bovbjerg R. The Changing Hospital Sector in Washington, D.C.: Implications for the Poor. Washington, D.C.: Urban Institute, October 1998.
Wiener J and Stevenson D. Long-Term Care for the Elderly in the District of Columbia: Issues and Prospects. Washington, D.C.: Urban Institute, April 1999.
Wiener J and Stewart Fox E. Long-Term Care, Elderly, and Adult Protective Services. Report to Mayor Williams' Transition Action Team C, Human Services Network. Washington, D.C.: Urban Institute, December 1998.
Presentations and Testimony
Barbara Ormond and Randall Bovbjerg, "The Changing Hospital Sector in Washington, D.C.: Implications for the Poor," to the Board of the D.C. Health and Hospitals Public Benefit Corp., October 30, 1998, Washington, D.C.
Barbara Ormond and Randall Bovbjerg, "The Changing Hospital Sector in Washington, D.C.: Implications for the Poor," invited testimony at the City Council of the District of Columbia, Committee on Human Services, Oversight Hearing on the Medical Assistance Administration, December 8, 1998, Washington, D.C. Rebroadcast numerous times throughout the month of December by Channel 13 Television.
Joshua Wiener, "Long-Term Care in the District of Columbia: Issues and Prospects," at a meeting of the Long-Term Care Subcommittee of the Mayor's Health Policy Council, January 20, 1999, Washington, D.C.
Joshua Wiener, "Long-Term Care in the District of Columbia: Issues and Prospects," to consumer and provider groups interested in long-term care, February 22, 1999, Washington, D.C.
Joshua Wiener, "Long-Term Care in the District of Columbia: Issues and Prospects," to senior District of Columbia health officials, February 23, 1999, Washington, D.C.
Urban Institute, October 21, 1998. The press release, "D.C. Health Market on Brink of Change: New Report Suggests Creating Citywide Policy on Care for the Uninsured," was distributed to local journalists, radio and television reporters, hospital representatives, and a mayoral candidate staffer.
"Financial Pressure Crippling D.C.'s Hospitals, Report Says. Cost of Caring for Uninsured Cited as Threat to Service," in The Washington Post, October 21, 1998.
"Hospitals and Health Systems District of Columbia: Hospitals Face Financial Strains," in American Health Line, October 22, 1998.
Associated Press Broadcast, October 21, 1998.
WAMU-Radio, Washington, D.C., October 21, 1998.
WPFW-Radio, Washington, D.C., October 21, 1998.
WTOP-Radio, Washington, D.C., October 21, 1998.
Fox News-TV, Washington, D.C., October 21, 1998.
News4Today, "Washington Business," WRC-TV (NBC affiliate), Washington, D.C., Oct. 21, 1998.
Report prepared by: Vivian Marino
Reviewed by: Susan G. Parker
Reviewed by: Molly McKaughan
Program Officer: Robert G. Hughes