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Local stories add color to data-driven reporting on hospital financial performance Date: 01/22/16

By Beth Kutscher

Not-for-profit hospitals are required give back to their communities to justify their tax exempt status. Those efforts usually take the form of providing charity care to the uninsured or subsidizing the training of new doctors.

But in the Tenderloin neighborhood of San Francisco, the biggest challenge isn’t access to health care services. Instead, the neighborhood struggles with gangs, violence and poverty – and the stress and psychological trauma that go along with living somewhere unsafe.

For my Modern Healthcare story, “Hospitals Broaden Scope of Community Benefit Work,” I traveled to the Bay Area to learn about the financial support that Saint Francis Memorial Hospital has given to organizations that are bettering the community. The Safe Passage initiative, for instance, created a weekday window when volunteers chaperone children walking home from school. The program involved delicate community engagement, like negotiating with local gang members to make sure that kids can walk to their afterschool activities unmolested.

Many other large health systems were eager to share their stories about their own community benefit investments. Some of the most innovative systems are tackling the social determinants of health, which are proving to be far more important to health outcomes than the quality of medical care you get.

But this “good deeds” story actually started as a financial article.

As the finance reporter for Modern Healthcare, I’ve been following the impact that the Affordable Care Act has had on hospital balance sheets since late 2013.

At the time, I expected to see significant differences between hospitals in states that expanded eligibility for their Medicaid programs and those in states that opposed that ACA provision.

I successfully applied for a yearlong AHCJ Reporting Fellowship on Health Care Performance to focus on that topic. The fellowship enabled me to travel to rural areas of Missouri and Illinois to examine how the ACA was playing out across border states with similar demographics but very different political climates.

I found one hospital in Benton, Ill., for example, that credited the ACA with allowing it to replace water lines and update its 1953 vintage elevators. Across the border, however, hospitals were intensely lobbying their state legislators to expand Medicaid eligibility to prevent more health facilities from closing their doors.

Checking the numbers

My project also had a data component. I did an analysis of earnings reports from hundreds of health systems that borrow money through the municipal bond market.

Instead of a “Divided States of Healthcare” (our working title for the series), my reporting led me to a different conclusion. My story turned out to be that a rising ACA tide was lifting all boats. Hospitals in both Medicaid expansion and non-expansion states had a better year in 2014 than in 2013 and – among the largest health systems, at least – their operating margins were virtually indistinguishable.

That’s because Medicaid expansion was just one piece of the puzzle. The “noise” in the data was the stronger economy, the subsidies available for people to purchase insurance through the ACA health insurance marketplaces, and mergers between health systems that have added size and scale. Moreover, Medicaid reimbursement provides some financial coverage, but it’s often significantly less than what other insurers pay and, in many states, is below the cost of delivering care.

Still, my analysis did find that bad debt and charity care were decreasing faster in states that expanded Medicaid as the most vulnerable patients gained a safety net. More money was coming in, and less of it was needed to care for the uninsured. But what was happening to the extra funds?

Questions about community benefits

A number of health policy researchers and politicians have been asking the same question, putting hospital community benefit spending under the microscope. There are even examples of municipalities that have stripped hospitals of their tax-exempt status when they determined that these providers were operating like for-profit entities.

Hospitals also have other motivations to improve the health of their communities. Under the new value-based payment models, hospitals are rewarded when they keep people healthy and penalized when they don’t. There are real dollars at stake.

Saint Francis’ efforts aren’t necessarily a response to new reimbursement formulas, and executives at the Catholic hospital and parent Dignity Health say they’re driven first and foremost by mission. The system has had community investment programs in place as far back as the 1980s.

Still, more money has been flowing through capitated contracts. The California Medicaid program, known as Medi-Cal, has been experimenting with initiatives that will provide greater care coordination for patients, and St. Francis too has participated in a local accountable care organization program.

“That’s where the social determinants are going to come in the most,” Abbie Yant, the hospital’s vice president for mission, advocacy and community health, told me.

Yant and others acknowledged that it’s too soon to say whether their efforts are making a difference yet – a topic I explored in the third part of my fellowship series. While hospitals have a larger financial stake in the health of their communities, their efforts are forging new ground. Questions remain about whether they’re best equipped to deal with the enormous task of community health improvement.


Beth Kutscher is the California bureau chief for Modern Healthcare and covers health care innovation and digital health. She spent nearly four years as the publication’s Nashville bureau chief, covering health care finance and for-profit health care. In 2015, she completed the Association of Health Care Journalists’ Reporting Fellowship on Health Care Performance.