Analysis of Hospital Operating Margins and Provision of Safety Net Services

Abstract

Safety net hospitals (SNH) provide many community services. The cost of providing these services is unknown. To determine what safety net criteria are associated with differences in hospital operating margin. This cross-sectional study of US acute care hospitals from 2017 to 2019 included eligible hospitals identified from US Centers for Medicare & Medicaid Services Cost Reports. Five domains of SNH: undercompensated care measured using the Disproportionate Share Hospital index, uncompensated care, essential community services, neighborhood disadvantage, and sole community hospital and critical access hospital status. Each was categorized as a quintile or binary response. Covariates included hospital ownership, size, teaching status, census region, urbanicity, and wage index. Operating margin and its association with each safety net criterion was determined using linear regression adjusting for all safety net criteria and covariates. A total of 4219 hospitals were analyzed, of which 3329 hospitals (78.9%) satisfied at least 1 safety net criterion; 23 hospitals (0.5%) met 4 or all 5 criteria. Among safety net criteria, the highest quintile of undercompensated care (-6.2 percentage point difference compared with lowest quintile; 95% CI, -8.2 to -4.2 percentage points), uncompensated care (-3.4 percentage points; 95% CI, -5.1 to -1.6 percentage points), and neighborhood disadvantage (-3.9 percentage points; 95% CI, -5.7 to -2.1 percentage points) were each associated with a lower operating margin. No association with operating margin was found between critical access or sole community hospital status (0.9 percentage points; 95% CI, -0.8 to 2.7 percentage points) or the highest vs lowest quintile of essential services (0.8 percentage points; 95% CI, -1.2 to 2.7 percentage points). Among essential services, burn, inpatient psychiatry, and primary care services were associated with lower operating margin, while others were either not associated or showed positive association. Fall-off in operating margin by level of uncompensated care was most severe in the highest percentiles of uncompensated care, with the most marked declines among those with the lowest operating margin. In this cross-sectional study of SNH, hospitals in the highest quintiles of undercompensated care, uncompensated care, and neighborhood disadvantage were more financially vulnerable than those not in the top quintile, especially when they met numerous of these criteria. Ensuring targeting of financial support to these hospitals could improve their financial stability.