Already in dire financial straits, U.S. safety net hospitals are now facing an increased risk of failure as a result of the Affordable Care Act, according to a new report released by Alvarez & Marsal’s Healthcare Industry Group. The report details a litany of unintended consequences of the legislation, including a “tsunami of financial challenges” for America’s more than 1,500 hospitals of last resort. It also reveals that healthcare inequities and access could actually worsen – at least in the short term – for the country’s most vulnerable populations as a result of the timing and implementation of provisions.

 “While this historic legislation had the noble ambition of making healthcare more accessible and affordable, we are now experiencing the fundamental disconnect between policy and reality, as unforeseen ramifications come to light,” said David Gruber MD, director of research in A&M’s Healthcare Industry Group. “Safety net hospitals are now operating in the untenable crosshairs of economic distress and healthcare reform. Already experiencing the deleterious effects of ongoing reductions in Medicaid spending and fiscal constraints at all government levels, they must now deal with shifting funding streams that historically have supported their missions. The combined result could have a negative impact on socially disadvantaged and clinically vulnerable patients in communities throughout the country.”

Among the factors that will worsen the financial condition of safety net hospitals, the report points to:

• A 45% reduction in Medicaid Disproportionate Share Hospital (DSH) payments from $9.9 in 2014 to $5.4 billion in 2019
• A 35-50% reduction in the annual Medicare market basket update through 2019
• Increased penalties associated with Medicare value purchasing initiatives targeting hospital admissions, hospital acquired conditions and patient satisfaction
• Potential for decreased volume due to the ability of previously uninsured patients to obtain healthcare services at other, non-safety net facilities.

The full report, entitled “Safety Net Hospitals at Risk: Rethinking the Business Model” analyzes the complex ecosystem serving the Medicaid population and uninsured, funding sources, the potential impact of the PPACA, the role of Medicaid Managed Care and benchmark performers. It also provides an overview of the issues in key states, including California, Florida, Illinois, Louisiana, New Jersey, New York, Pennsylvania and Texas.

Download the entire Alavarez & Marsal study.