The demand for safety net services is growing in many communities for several reasons. The uninsured rate is climbing because of shifts in the mix of jobs (e.g., toward retail trade and part-time and temporary work, where health coverage is less prevalent) and increases in health insurance premiums. The problem of uninsurance is compounded by the needs of people with special health care problems arising from HIV/AIDS, homelessness, substance abuse, and other causes.

Medicaid managed care may be a threat to safety net providers as nontraditional providers expand into the Medicaid market, leaving safety net providers with fewer paying patients.

Increased penetration of managed care in the private market has resulted in heightened price and nonprice competition.

Federal and state assistance to safety net providers can help cover the revenue shortfall arising from the combination of below-market payments by Medicaid and the cost of serving the uninsured. Some states provide higher levels of support than others for hospitals through programs such as the Medicaid disproportionate share hospital (DSH) program.

Taken together, these factors suggest that the stress on safety net providers, and the need for local support for indigent care, will be greater where there are a large number of uninsured people, a substantial penetration of Medicaid managed care, a high level of market competition, and a relatively low level of federal and state support.

The magnitude of the gap between a safety net hospital's operating revenues (or internally generated funds) and its operating costs varies greatly. In other words, the financial problem facing safety net hospitals, while always substantial, can be of manageable size in one community and enormous and almost overwhelming in another. A recent study found that public hospitals need to retain a reasonable number of paying patients-Medicaid, Medicare, and privately insured-to have the financial ability to serve nonpaying patients.

The amount of a safety net hospital's internally generated funds depends partly on the generosity of the state's Medicaid program. If Medicaid covers a relatively large proportion of the state's lower-income population, a safety net hospital is likely to have less uncompensated care. Similarly, safety net hospitals in states that make more generous payments per Medicaid beneficiary are likely to be in better shape financially. Both the breadth and the depth of Medicaid coverage are directly related to the amount of internally generated funds for hospitals serving an indigent population. The more a state supports these institutions through Medicaid, the less the need for state and local governments to provide them with direct subsidies.

Medicaid outlays per enrollee are low in Texas. The state spent $2,677 per enrollee in federal fiscal year (FFY) 1996, compared with a national average of $3,397.  In addition, Texas Medicaid eligibility does not extend beyond the minimum criteria established by the federal government. As a result of limited Medicaid coverage, Medicaid spending per low-income person in Texas also was below the national average in FFY 1996 ($1,199 versus $1,690).

The push by most states to enroll large numbers of Medicaid beneficiaries in managed care plans is reducing the Medicaid revenues of many safety net hospitals, exacerbating their financial problems. Between 1991 and 1997, the proportion of Medicaid beneficiaries enrolled in managed care rose from 9.5 percent to 47.8 percent, according to data from the Health Care Financing Administration. With the shift to Medicaid managed care, safety net providers are placed at greater financial risk as they lose Medicaid patients to private providers but keep uninsured patients.

Safety net providers historically have served primarily Medicaid patients and uninsured patients. Medicaid reimbursements have typically been lower than payments by Medicare and commercial payers, but taken together these revenues have enabled safety net providers to cross-subsidize charity care patients. As commercial payers and Medicare have lowered payment rates and placed more emphasis on utilization management, financing through cross-subsidies has become more difficult to achieve. Thus, safety net providers have had to rely more heavily on other sources of funding, including federal, state, and local subsidies.

The rapidly escalating demand for charity care is affecting not only SETON, but all those who provide care or finance that care, including our local, state and federal governments. Our Central Texas region is not just Austin and Travis County, but 12 additional Central Texas counties. Residents there turn to SETON facilities for care, especially when the needs require the highly specialized skills our physicians and staff provide, when the need is a result of trauma, and often when those needing care are uninsured. Both the City of Austin and Travis County fund programs for the poor out of their tax dollars to help underwrite the costs of care that federal and state payments are insufficient to cover. Many who need care, however, are not covered by any of these programs or by limited community and government-sponsored programs. Growth is increasing demand for services all over our region, just as it is in Austin.

Last year, SETON alone provide more than $100 million in charity care and community benefit.