No margin, no mission? How safety net hospitals balance financial and ethical concerns

If you work in the hospital sector, you may have heard the phrase, “No margin, no mission.” It means that without financial sustainability, hospitals can’t stay open and achieve their mission to serve those who need care.

For hospitals that operate on razor-thin margins, balancing financial concerns with their social mission is an incredibly difficult task. This balancing act is the subject of a recent Perspective piece in the New England Journal of Medicine, authored by Dr. Dave A. Chokshi from Bellevue Hospital in NYC and Dr. Frederick P. Cerise from Parkland Health System in Dallas, TX.

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Balancing tradeoffs

They outline some of the ethical challenges that hospitals with limited resources like Bellevue and Parkland face on a daily basis, including:

  • Utilitarianism (doing the most for the greatest number of people) vs equity (targeting people with the greatest need)
  • Limiting free care to local residents that support the hospital with their tax dollars vs caring for as many needy people as possible, regardless of where they’re from
  • Investing more in social needs, such as housing or food security vs focusing on providing healthcare services
  • Investing in long-term infrastructure vs urgent short-term needs
  • Investing in services that are greatly needed but poorly reimbursed, like inpatient psychiatric care or trauma care vs investing in services that provide a greater financial return
  • Removing barriers to entry like asking patients for their insurance information vs losing money on patients who don’t give their insurance information

“In safety-net systems, resource constraints mean that each outlay for a patient’s care must be measured against its opportunity costs,” Chokshi and Cerise write.

Without addressing these concerns, they can create serious issues for the system and for patients. Financial distress means the possibility of closure, which is sadly getting more and more common for safety nets. However, going too hard in the revenue-seeking direction can be dangerous for patients. For example, the New York Times reported last year that Bellevue Hospital had been allegedly rushing patients into weight-loss surgeries to increase their volume of this high-cost procedure.

Why does this happen?

Why do some hospitals have to make these hard choices, while others don’t? It comes down to the nature of our segregated healthcare system. Hospitals get paid the most to perform high-tech elective surgeries for patients with private insurance but barely break even on preventive or routine care for patients with Medicare or Medicaid. This means their financial success often depends on attracting wealthier patients with private insurance, who are more likely to be white. The result is that people of color are concentrated in certain hospitals, usually public or safety net hospitals, while elite academic medical centers are often out of reach

The fact that we have a two-tiered insurance system rather than universal coverage is not an accident–it’s a policy choice. While the government has established benefits to ostensibly provide financial support to safety net hospitals, these benefits don’t always support the hospitals that need them most. Programs like 340B drug discounts and Disproportionate Share Hospital (DSH) payments “were originally designed to support the mission of the safety net but have been warped to benefit other (often better-resourced) providers,” Chokshi and Cerise write.

How hospitals cope

Typically, safety nets have managed scarcity “by applying the time-tested principle of triage: dedicating resources first to patients in crisis,” Chokshi and Cerise write. But this means these are always behind, trying to catch up, and may not be able to invest in long-term infrastructure that could make the system sustainable.

In NEJM, the authors provide examples of how safety net systems have addressed these ethical issues, such as investing in case managers to reduce the cost of patients with the highest needs while improving their health, including financial services like free tax preparation in clinics to address poverty.

However, the inequities in our healthcare system go far beyond what any one hospital can do–that’s why advocacy is key. Clinicians across the country have been taking much-needed action on environmental justice, racism, immigration detention and many other humanitarian issues. And some safety net leaders “have been at the vanguard of universal health care programs advanced at the local and state levels,” Chokshi and Cerise write.

However, safety net hospitals may be getting a financial boost, thanks to new policies on the horizon. CMS’s final rule on DSH payments will narrow the definition of Medicaid shortfall to apply only to payment made for patients with Medicaid as their primary payer. Theoretically, this will lead to redistribution of DSH payments to hospitals serving more Medicaid patients.

Congress is also considering creating a designation for “essential hospitals” that would allow more funds to be allocated to certain hospitals that “either have a Medicare disproportionate patient percentage of at least 35% or have a Medicare disproportionate share hospital uncompensated care payment factor of 0.0005 or more, or meet Medicaid’s established requirements for disproportionate share hospital status.”

These changes have the potential to boost safety net hospital funding and relieve some of these tough tradeoffs they face. However, without universal healthcare in which every patient is valued equally, we will still face a segregated system.