Hospitals serving more Black patients are at a financial disadvantage, study finds

It’s been more than 50 years since the Civil Rights Act and the advent of Medicare disallowed segregation at hospitals, but disturbingly, hospital systems in many major cities are still segregated by race in practice. A Lown Institute report earlier this year identified fifteen U.S. cities with racially segregated hospital markets, in which 50% or more of hospitals overserve or underserve Medicare patients from communities of color.

Which cities have the most segregated hospital market? See the full list at the Lown Hospitals Index website.

Our segregated hospital system has a significant impact on health equity because many of the most-inclusive hospitals in the country are under-resourced, which can lead to poorer quality of care. For example, quality issues at some New York City safety net hospitals contributed to higher rates of COVID-19 mortality and life-threatening birth complications for Black people. Many of the hospitals receiving one star on CMS’ measures of patient safety and patient experience are safety net hospitals and public hospitals serving communities of color.

Inclusive hospitals get paid less

Now a new study finds that some of the most inclusive hospitals for Black patients are also at a financial disadvantage, which may explain some of the differences in quality of care. In the Journal of General Internal Medicine, Dr. Gracie Himmelstein from the University of California Los Angeles and colleagues use hospital cost reports to measure hospital patient revenue and profits at hospitals serving more Black Medicare patients in 2016-2018.

They found that the 574 hospitals that served the greatest proportion of Black Medicare patients received $477 less in patient care revenues per inpatient day on average compared to other hospitals. Hospitals serving the most Black patients actually lost an average of $17 per inpatient day in profits while other hospitals gained $126 in profits each day.

When adjusting for hospital characteristics (size, ownership type, etc) and patient mix (the type of patients the hospitals treats and the severity of their medical conditions), hospitals serving more Black patients still received $283 less in patient revenue and $111 less in profits per inpatient day on average compared to their peers.

The role of insurance type

The authors noted that differences in insurance status plays a role in financial disadvantage for Black-serving hospitals. When adjusting for the proportion of Medicaid patients, the patient revenue gap between Black-serving hospitals and other hospitals decreased to $173 per inpatient day. When adjusting for the proportion of uninsured patients, the patient revenue gap between Black-serving hospitals and other hospitals decreased to $205 per inpatient day. Yet there was still a sizable gap in profits between more inclusive hospitals and other hospitals, even controlling for hospitals’ proportion of uninsured or Medicaid patients.

This may be because of differences in private insurance coverage or ability to pay. White patients are disproportionately more likely than Black patients to have employer-sponsored insurance, which pays higher rates than Medicare or Medicaid. Even among patients with employer-sponsored coverage, nearly 12% report not being able to pay their medical bills; this rate rose to 21.5% for those making less than $50,000. If patients can’t afford to pay their out-of-pocket costs, that impacts hospital patient revenue.

The impact on communities

When hospitals serving Black communities are under financial stress, it’s difficult for them to improve quality of care. In some cases, hospitals may even have to close — such as Hahnemann University Hospital in Philadelphia and Kingsbrook Hospital in Brooklyn, NY — leaving communities with no lifeline.

If we want everyone to have equal access to high-quality hospital care, there should be no difference in the reimbursement rates for those with public versus commercial insurance. We also have to improve the quality of hospitals taking care of communities of color. Unfortunately, many of the “pay-for-performance” models that have been implemented are further penalizing safety net hospitals financially, which may make it even harder for them to catch up.

“Our multi-tiered health insurance system continues to assign a lower dollar value to the care of Black patients.”

Gracie Himmelstein, MD, PhD, et al., Journal of General Internal Medicine

The study authors calculate that each Black-serving hospitals would need to receive about $26 million more in patient revenue per year to make up the financial gap. However, simply equalizing funding may not be enough to make up for the high need for health services in communities of color. For example, a 2020 study found that Black communities had much greater Covid-19 burden and greater rates of chronic health conditions compared to other communities who received similar CARES Act funds.

Policymakers should target America’s most inclusive hospitals for investment and assistance, so that the patients they serve can get the best care possible.