A Major Tear in the Chicago Safety-Net System

Since 2000, the Chicago area has witnessed 20 hospital closures, a loss of nearly a quarter of the city’s hospitals. In the past three years alone, there were four scheduled hospital closures in the South and West sides, though one—Mercy Hospital—was saved at the last minute by an out-of-state investor. These hospitals were healthcare anchors for surrounding low-income, mostly Black and Hispanic neighborhoods. The shuttering of safety-net hospitals, which serve primarily low-income and uninsured patients and provide care even when patients cannot pay, is a national trend, but it is particularly stark in Chicago, where inequality and segregation persist.

The remaining safety-net hospitals in Chicago expect a similar fate. With low Medicaid reimbursement rates set by the state, delayed payments by insurers, and inadequate disbursement of charitable donations by area hospitals, Chicago safety-net hospitals are expected to lose $1.8 billion by 2024, leading to cuts in patient care, job loss, and increased strain on the few remaining hospitals. Despite agreement that safety-net hospitals provide a vital resource by offering Chicago residents security and access to necessary care, the lack of proper incentives and coordination among policy makers, hospitals, and insurers have left these hospitals on the verge of financial collapse. It is possible to address these problems by working within the systems already in place— such as providing higher levels of Medicaid reimbursement, enforcing previously written rules for insurers, and better coordinating hospitals’ charitable funds.

While all hospitals are required to let a person into their emergency rooms, safety-net hospitals guarantee admittance or treatment even if a patient cannot pay. As a result, safety-net hospitals are the primary site of care (and often the only available resource) for patients who yield low revenues for hospitals, such as those with behavioral health disorders and low-income patients. 40% of hospitalized patients with a behavioral health disorder are cared for at safety-nets, even though they only make up 19% of hospitals. In addition, 40% of safety-net hospital patients are enrolled in Medicaid, a government insurance program for low-income people, compared to 18% at all other Illinois hospitals. With Medicaid reimbursing only 30% of what private insurance pays, non-safety-net hospitals are disincentivized from treating these patients. Research shows that for every $10 increase in Medicaid reimbursement per visit, adults were less likely to be turned away by physicians and less likely to report difficulty finding a provider for their children. Therefore, raising reimbursement rates could shore up the finances of safety-net hospitals while also improving health outcomes of patients.

Medicaid Managed Care Organizations (MMCOs), private insurance companies contracted to administer Medicaid benefits, also contribute to the strain on safety-net hospitals by delaying payments. The average Illinois hospital is waiting on $1.3 million in unpaid MMCO bills and must expend already limited capital on staff to ensure collection of insurance payments. Surprisingly, MMCOs continued to receive billions of taxpayer dollars during the COVID-19 pandemic despite a decrease in provided services; in fact, three Illinois MMCOs reported a total $282 million increase in profits during the nine-month time period when the pandemic was at its height. Furthermore, due to poor enforcement by the Illinois Government, MMCOs often do not spend their funding properly. A 2018 report by the Illinois Auditor General found the state failed to impose the requirement for MMCOs to spend 85% of public revenues directly on medical services between 2012 and 2015. This ultimately resulted in the state retroactively collecting $90 million in excess payments. To ensure proper payments and medical services, Illinois officials should hold insurance companies accountable by enforcing the 85% rule and closing any loopholes the companies may be using.

While improving the revenue stream of safety-nets is key to their continued support of underserved communities, non-safety-net hospitals can also help reduce the strain of caring for low-income patients. To ensure these patients have better access to necessary care, Illinois currently exempts non-profit hospitals’ property taxes in return for providing the value of those taxes as charitable care services, or charity care. The higher revenues from this tax exemption, though, are not translating into higher amounts of charity care. Between 2018 and 2019, revenues rose three percent, yet the largest area-hospitals saw charity care spending decrease one percent. While charity care makes up one to two percent of revenue for most hospitals, the largest safety-net hospital in Cook County, Stroger Hospital, spent nearly 51% of its revenue in 2019 on charity care. With each hospital overseeing only its own charity care program, it is up to the state to ensure appropriate disbursement of funds. Accountability, however, is lacking. Utilizing the existing tax exemption framework, Illinois could address this issue by increasing scrutiny of hospital spending on charity care, and creating a rule where charity care spending must be a certain percentage of hospital revenue. The rule might include a cap and trade–like system, where non-safety-net hospitals either pay safety-net hospitals to take on more low-income patients, providing appropriate levels of charity care to receive the full tax exemption, or pay their property taxes in full so the state or city can use those funds to increase Medicaid reimbursement.

The tools to secure the finances of the city’s safety-net hospitals are available and accessible, but utilizing them to improve the welfare of patients and the public will take leadership and commitment from all players. Working within existing  systems of Medicaid, MMCOs, and charity care, Illinois can ensure security and well-being for those currently facing financial hardship and those who may need help moving forward. If action is not taken soon, we face a future of great disparity and worse health outcomes for ourselves and our neighbors.

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References

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Goldberg, Stephanie. 2021. “More People Are Uninsured. But Charity Care Is Down.”. Crain’s Chicago Business. https://www.chicagobusiness.com/health-care/more-people-are-uninsured-charity-care-down.

Goudie, Chuck. 2022. “Mercy Hospital’s Slated Closure Among Wave Of Medical Centers Vanishing From Chicago Area”. ABC7 Chicago. https://abc7chicago.com/hospitals-closing-mercy-hospital-chicago-urban/7202136/.

“Illinois Safety Nets”. 2016. Team-Iha.Org. https://www.team-iha.org/files/non-gated/member-resources/safety-net-backgrounder.aspx.

Jackson, David. 2021. “Illinois Medicaid Companies Rake In Record Profits From Pandemic”. Better Government Association. https://www.bettergov.org/news/illinois-medicaid-companies-rake-in-record-profits-from-pandemic/.

Jackson, David. 2021. “Illinois’ $16 Billion Health Program Riddled With Industry Ties And Potential Conflicts Of Interest”. Modern Healthcare. https://www.modernhealthcare.com/medicaid/illinois-medicaid-program-riddled-industry-ties-and-conflicts-interest.

McKnight, Robin. 2019. “Increased Medicaid Reimbursement Rates Expand Access To Care”. NBER. https://www.nber.org/bh/increased-medicaid-reimbursement-rates-expand-access-care.

Reel, Monte. 2021. “The Left-For-Dead Hospital That Got A Second Chance For $1”. Bloomberg.Com. https://www.bloomberg.com/news/features/2021-10-01/mercy-hospital-gets-second-chance-to-provide-health-care-to-chicago-s-poor.