Opinion: The Uncertain Future of Safety-Net Hospitals

The demise of a Philadelphia hospital could signal trouble ahead for facilities that cater to the poor and uninsured.

This summer, one of America’s oldest safety-net hospitals effectively closed its doors. The demise of Hahnemann University Hospital, a 171-year-old fixture on the corner of Broad and Vine in Philadelphia’s Center City, was unceremoniously announced with a press release on June 26th. The cause of death, most assume, was greed. As the story goes, Hahnemann was the latest victim of private equity, suffering the same fate as failed retail chains and media outlets — its assets gutted, its buildings to be razed, and its real estate to be developed into luxury apartments in a district of Philadelphia ripe for gentrification.

By any definition, the actions of Paladin Healthcare, the private equity firm that acquired Hahnemann in 2018, are immoral and set a dangerous new precedent. They have also created, in the words of local lawmakers, a “bona fide public health emergency” affecting thousands of lower-income Philadelphians. But as this scenario of late-stage capitalism plays out in the City of Brotherly Love, I can’t help but think that Hahnemann’s demise is the result of more than greed alone. Rather, it may be symptomatic of a larger economic system that leaves safety-net hospitals like Hahnemann destined to fail.

Although they are imperfect, safety-net hospitals — by offering to care for anyone, regardless of their ability to pay or their insurance status — fill in the cracks of our health care system. Driven by social missions, they care for our poorest and our sickest by design. They frequently offer services that are necessary for communities but resource intensive and unprofitable, like bone marrow transplants, trauma work-ups, and psychiatric hospitalizations. They also train our next generation of health care workers and fuel local economies.

The social missions of safety-net hospitals like Hahnemann, however, have compromised their financial success. Despite making up only about a quarter of all American hospitals, safety-net hospitals take care of about half of all patients with Medicaid (which compensates at lower rates than private insurance) and nearly the same fraction of the uninsured (whose numbers are once again rising as of this year). So-called critical-access hospitals play a similar role in rural America. The fates of these hospitals seem to be connected: The closing of more than 150 rural hospitals over the past decade and a half has foreshadowed what is happening to Hahnemann today.

When safety-net hospitals like Hahnemann close, things spiral into chaos. Within a day of the closure being reported, Paladin Healthcare found itself embroiled in legal battles with local and state regulators. In the following weeks, doctors, nurses, community members, and union members protested in downtown Philadelphia, and even Senator Bernie Sanders entered the fray, holding a public rally at Hahnemann.

The planned closure has resulted in the largest layoff of resident physicians in American history and left hundreds of medical, nursing, and physician assistant students without a place to train. After all is said and done, more than 2,500 ancillary workers will be left without a job, potentially decimating the local economy. Patients who relied on Hahnemann for long-term services, like treatment for leukemia and cystic fibrosis, will see their ties with physicians and staff potentially severed.

To their credit, local, nearby university hospitals, like Jefferson, Penn, and Temple, have risen to the occasion, preparing themselves for an imminent flood of emergency-care and long-term patients who have nowhere else to go. But the fall of Hahnemann still leaves one of Philadelphia’s most vulnerable communities without a hospital it had come to depend on.

The destruction of safety-net and critical-access hospitals threatens to segregate our health system between haves and have-nots. Hospital closures already have created medical deserts in some rural towns and now threaten to create them in large urban centers.

The implications of this sea-change, in urban areas particularly, aren’t certain. Some might argue that Philadelphia is already saturated with world-class medical centers, and that Hahnemann may not be missed over time. They might draw a similar conclusion to one offered by a nationwide study published in Health Affairs in 2015, which examined nearly 200 hospital closures between 2003 and 2011 and found that they had no effect on the overall mortality rates in surrounding communities.

But a 2004 working paper from the National Bureau of Economic Research suggests the reality may be more complicated. Examining the effects of hospital closures in Los Angeles in the late 1990s and early 2000s, the study found that, although closures of low-performing hospitals can confer some benefits, they can also carry substantial costs. Those costs are carried primarily by vulnerable populations: Lower-income residents are less likely to access care in a hospital or get HIV testing; seniors are less likely to get flu shots; and infant mortality rates may increase. Residents were also more likely to die from unintentional injuries and heart attacks – both of which require fast treatment — even if the next closest hospital was only a mile further away.

Things may get even worse for these community institutions. Historically, to counter their financial disadvantage, safety-net and critical-access hospitals have received government support in the form of disproportionate share hospital (DSH) payments. The Affordable Care Act, signed into law in 2010, called for significant cuts to DSH payments, under the expectation that a nationwide Medicaid expansion would drastically reduce the uninsured population and render the payments unnecessary. Many states opted out of the expansion, however, and the scheduled cuts have been repeatedly delayed since 2014. But they are a ticking time bomb; if Congress doesn’t delay them once more this October, the payments could be slashed by a third this year, and roughly $44 billion over the next 6 years.

With private equity’s expanding presence in American healthcare, we can expect more stories like Hahnemann’s to emerge in the near future. On Paladin’s books alone are several other hospitals, including Howard University Hospital in Washington, D.C., and a number of hospitals in Los Angeles.

More will have to be done to save our community institutions. That may mean increasing funding for the DSH program or, as Senator Bernie Sanders suggested, creating a distress fund for safety-net hospitals facing bankruptcy. Value-based payments, which would attach reimbursement rates to specific performance markers, may help to shake the dust off health care’s entrenched pricing policies. Studies have shown, however, that these programs can unfairly penalize safety-net hospitals caring for sicker populations.

It might seem like Medicare-for-All would fix these issues. But a recent fact-check by Kaiser Health News suggests that results of such a plan might be mixed: Hospitals that cater to uninsured patients could likely see their revenue increase, and hospitals that largely treat privately insured patients could suffer financially. But too much remains unknown about what Medicare-for-All would look like — particularly what the Medicare reimbursement rates would be — to draw definitive conclusions. Ultimately, our safety-net and critical-access hospital deserve more nuanced solutions.

Beyond its implications for public health and its lessons for hospital payment reform, the parable of Hahnemann suggests something about our society’s values that, if true, is fundamentally disturbing: It suggests that we accept as a premise that some communities, because of their wealth and access to private health insurance, are more deserving of hospitals than others. I’m hard-pressed to believe that this is really what we want.

Vishal Khetpal is a fourth-year medical student at the Warren Alpert Medical School of Brown University.