When safety-net hospitals close, what happens to nearby providers?

AP photo

Atlanta Medical Center closed after experiencing more than $100 million in losses.

Many hospitals tasked with treating the most vulnerable patients are teetering on the edge of closure, jeopardizing surrounding providers and the communities they serve.

Atlanta Medical Center’s closure is one recent example: The November shuttering of the 460-bed hospital in the city center spurred a series of financial and social consequences for area hospitals and residents, mirroring the ripple effect of similar closures seen in Philadelphia and elsewhere.

Related: How health inequity maps out across America

More safety-net hospitals are expected to cut services or close over the next year. While neighboring health systems try to keep safety-net hospitals viable through administrative support and other initiatives, industry observers say policy tweaks and additional funding could also prove necessary.

“I have been a CEO since 1988, and this is the worst operating environment I have ever seen,” said Michael Young, president and CEO of Temple University Health System, which operates safety-net hospitals in Philadelphia. “We are going to continue to see closures of not just services and programs, but entire safety-net hospitals.”

Safety-net spillover

A growing number of safety-net hospitals, which dedicate at least a quarter of their care to low-income patients, are in danger of closing amid financial troubles created by a fragmented reimbursement system, rising costs and aging infrastructure. Without accounting for COVID-19 relief funds, aggregate operating margins for hospitals that disproportionately care for Medicaid beneficiaries were -4% in 2020, down from -3.3% in 2019, according to the most recent analysis from the Medicaid and CHIP Payment and Access Commission.

Their closures disrupt operations and imperil finances at nearby providers, along with restricting access for vulnerable patients.

“The worry isn’t just about shifting volume to other hospitals, it’s about patients dropping out of the healthcare system,” said Travis Lloyd, a healthcare attorney at Bass, Berry & Sims who has advised officials on hospital closures.

Atlanta-area providers are struggling to accommodate displaced patients five months after Marietta, Georgia-based Wellstar Health System shut down Atlanta Medical Center, leaving a hole in the city’s healthcare system. The hospital, which had served the historically Black Old Fourth Ward since 1901, disproportionately provided services for low-income residents. More than 16% of its operating expenses went to uncompensated care between 2017 and 2021. Medicare, Medicaid and uninsured patients accounted for about two-thirds of its payer mix.

Related: Safety-net hospitals harmed by supplemental payment ‘slippage’

Most of Atlanta Medical’s doctors and nurses were diverted to Wellstar’s nearby hospitals. Many non-clinicians lost their jobs, and some had to move because they couldn’t afford to live in the city anymore, said Liliana Bakhtiari, Atlanta city councilmember for District 5, where Atlanta Medical was located.

A spokesperson for Wellstar cited lack of funding, underestimations of investments needed to update the facilities and the financial woes resulting from the COVID-19 pandemic as reasons for the closure.

Atlanta Medical struggled to turn a profit for years before its shutdown. In February 2020, Wellstar announced a public search to sell the hospital or partner with another entity that could share the cost burden of updating its aging infrastructure. Leaders at the nonprofit health system said they met with several possible suitors, but to no avail.

“No potential partners saw a path forward for AMC,” a Wellstar spokesperson said.

The pandemic made matters worse, spurring a $107 million loss in 2022.

Wellstar representatives said in a statement that the organization had been in touch with stakeholders, such as area healthcare systems and providers, about the decision to close and had committed to collaborating on an “orderly transfer of care” for patients and community members. Representatives also said the system took steps to inform the community about the situation, including sending mail with alternate care options to households within a two-mile radius of Atlanta Medical and helping patients find new local providers.

“The worry isn’t just about shifting volume
 to other hospitals, it’s about patients dropping out of the healthcare system.”

Travis Lloyd, a healthcare attorney at Bass, Berry & Sims

Since the closure, Grady Memorial Hospital a few miles away has been experiencing higher volumes and longer wait times for emergency and elective procedures, according to Dr. Robert Jansen, chief of staff and chief medical officer of Grady Health System.

“We have just been flooded with everybody who went to AMC. Other hospitals had to take on that burden,” Jansen said.

The 953-bed public hospital saw trauma volumes increase 40% virtually overnight, and that elevated number has remained steady, Jansen said. The demand has overwhelmed its operating rooms, which have had to decline elective procedures in order to care for more critically ill patients. Deliveries also rose 30% at Grady’s maternity wards, and more babies are being treated in its neonatal intensive care unit.

Immediately following the announcement that Atlanta Medical would close, Grady Memorial received a $130 million grant from the state to add nearly 200 beds in formerly decommissioned units to ease the burden. Hospital leadership is trying to open the first tranche of beds by August, but is concerned about its ability to recruit nurses in the tight labor market.

Atlanta Medical’s closing has also strained Atlanta-based Emory Healthcare. Its Midtown hospital, which is about a mile away from Atlanta Medical, saw its ambulance transports increase about 40% and emergency room visits jump more than 20% days after Atlanta Medical closed, said Dr. Ravi Thadhani, who oversees Emory’s academic medical center.

“When a 500-bed hospital and a Level 1 trauma center closes, the ripple effect to a city like this is enormous,” he said.

The volume increases haven’t tapered off, and appointment wait times across the system continue to be higher-than-average, he said. Meanwhile, more Medicare and Medicaid beneficiaries have sought care at Emory, particularly its Midtown hospital, Thadhani said.

“We rely on our commercial insurance population to absorb the cost of Medicare and Medicaid. The more we change the payer mix, the more we compromise the margin,” he said.

Thadhani pointed to the trickle-down effect of the closures.

“That put a lot of stress on our staff and our facilities,” he said. “What we saw was an increasing risk to patients who needed immediate and regular care. There are only so many beds.”

Emily Ekanayake, a high school physics teacher, needs regular treatment at 529-bed Piedmont Atlanta Hospital for gastroparesis, an autoimmune disorder that paralyzes her stomach muscles and induces vomiting.

Following the closure of Atlanta Medical 4 miles away, she received care overnight in the hospital hallway, treated by overwhelmed clinical staff and surrounded by an onslaught of patients.

“I don’t want to do this every time I get sick,” Ekanayake said.

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Piedmont did not respond to requests for comment.

The month after closing Atlanta Medical, Wellstar announced plans with Augusta University Health System to expand into Columbia Countywhich faces much lower levels of social vulnerability, according to the Centers for Disease Control and Prevention.

The University System of Georgia Board of Regents approved the Wellstar-Augusta affiliation in late March.

Local leaders filed federal complaints in March against Wellstar for allegedly violating the Civil Rights Act and its nonprofit community benefit obligations related to Atlanta Medical’s shuttering.

Wellstar representatives denied the allegations and said the complaints do not have merit.

An ominous pattern

The 2019 closure of Hahnemann University Hospital, a 496-bed academic medical center that mirrored the size and patient mix of Atlanta Medical Center, sent a similar ripple effect through the metro Philadelphia area.

Hahnemann, which was Philadelphia’s first Level 1 trauma center, served the city’s poorest patients. It was also the teaching hospital for Drexel University, one of the largest private medical schools in the country.

California private equity investor Joel Freedman purchased the hospital for $170 million in 2018 from Dallas-based for-profit hospital chain Tenet Healthcare Corp. In June 2019, Hahnemann filed for bankruptcy, liquidating its assets after recording months of significant operating losses. About two months after filing, Hahnemann closed.

Freedman did not respond to requests for comment.

“These closures always affect the patients in the poorest health and with the fewest resources. The biggest effect is on access. Every hospital’s emergency room became jam-packed after Hahnemann closed.”

Michael  Young, president and CEO of Temple University Health System

Hahnemann provided emergency care to more than 50,000 patients a year, employed 2,500 workers and trained 571 medical residents at the time of its closure.

“These closures always affect the patients in the poorest health and with the fewest resources. The biggest effect is on access,” Temple’s Young said. “Every hospital’s emergency room became jam-packed after Hahnemann closed.”

Temple tried its best to prepare for and respond to the shuttering, Young said. Its Temple University Hospital location is about 3 miles from Hahnemann’s former site.

The health system increased its ambulatory and home care staffing, worked with its long-term care affiliates to expedite discharges and added equipment and staff to its labs, helping Temple reduce its average length of stay from 7 days to 5.5 days in the months following the closure, he said.

Philadelphia-based Jefferson Health and Penn Medicine, along with Berwyn, Pennsylvania-based Main Line Health, among other systems, also helped fill the gaps in obstetrics, behavioral health and primary care. They were able to accommodate most of the medical students who had to transfer.

The number of deliveries at Jefferson’s obstetric unit doubled, then-CEO Dr. Stephen Klasko wrote in an opinion column for Modern Healthcare at the time, describing it as a “national warning about the cost of caring for vulnerable populations.”

Jefferson Health declined to comment on the Hahnemann closure.

“People who absolutely need care will get care most of the time. But at the margin, there will be people who need care who aren’t going to get it. Almost certainly there will be more pain and suffering, and maybe even deaths.”

Dr. Vikas Saini, president of the Lown Institute, a nonpartisan think tank

Since Hahnemann closed, more Philadelphia-area hospitals have shuttered. Springfield, Pennsylvania-based Crozer Health closed the 168-bed Delaware County Memorial Hospital in Drexel Hill late last year, after a Pennsylvania judge blocked the company’s plans to convert the hospital into a behavioral health facility. Crozer, acquired by for-profit hospital operator Prospect Medical Holdings in 2016, also converted its 25-bed Springfield hospital to an outpatient facility at the end of last year.

Meanwhile, West Reading, Pennsylvania-based Tower Health has closed two of its six hospitals: Brandywine Hospital in Coatesville last year, and Jennersville Hospital in West Grove in late 2021. Wilmington, Delaware-based ChristianaCare has since purchased the Jennersville facility and is w orking to reopen it.

“There is a pattern here and it is really ominous,” said Jeff Goldsmith, president and founder of consultancy Health Futures. “Hospitals like Atlanta Medical Center care for a grossly underserved community, and there are a half a dozen others like it [nationwide] that are hemorrhaging.”

Funding and other fixes

Some large health systems are trying to stave off other safety-net hospital closures, but experts warn more will fail without regulatory and legislative changes.

“People who absolutely need care will get care most of the time. But at the margin, there will be people who need care who aren’t going to get it,” said Dr. Vikas Saini, president of the Lown Institute, a nonpartisan think tank. “Almost certainly there will be more pain and suffering, and maybe even deaths.”

New Hyde Park, New York-based Northwell Health has been trying to help nearby community hospitals through administrative support, capital planning and one-time funding for infrastructure.

One such hospital is Maimonides Medical Center in Brooklyn, which recorded a $145 million operating loss in 2021, the latest annual data available. Within the boundaries set by antitrust law, Northwell is helping Maimonides by advising infrastructure improvements to attract more commercially insured patients, sending staff to its facilities to identify bottom-line improvement opportunities and reducing supply chain expenses via group purchasing, Northwell President and CEO Michael Dowling said. Northwell is additionally lending IT support for revenue cycle management and lab operations, he said. It’s offering similar aid to Wyckoff Heights Medical Center in Brooklyn, which also faces financial difficulties.

“The fundamental problem in hospitals is that government reimbursement is too low,” Dowling said. “The bulk of hospitals that are dependent on Medicaid are in dire circumstances.”

Some community groups are pushing for Northwell to purchase Maimonides, which generates about $1.5 billion in revenue a year. That would dent Northwell’s finances and potentially hurt its credit rating, Dowling said.

“It will be dilutive to our financial position and Northwell will become a problem to the state,” he said.

Outside of affiliations such as Northwell’s or acquisitions, safety-net hospitals could benefit from tweaked reimbursements and adjusted policies.

Congress should narrow the reach of the disproportionate-share hospital payment program and the 340B drug discount program so hospitals treating the most low-income patients receive the most funding, industry observers said.

Medicare and Medicaid disproportionate-share hospital payments, which vary by state, are intended to offset uncompensated care for low-income patients. Eligible hospitals can participate in the 340B program, which allows hospitals and clinics to buy drugs at discounts of up to 50%, if at least 11.75% of their patient mix is Medicare or Medicaid patients.

Both programs are stretched too thin across thousands of clinics and hospitals, some of which treat a relatively low number of Medicare and Medicaid beneficiaries, said Ian McCarthy, an economics associate professor at Emory University.

The share of hospitals that met the minimum 340B eligibility threshold increased 41% from 2014 to 2016, according to 2021 research published in the peer-reviewed journal BMC Research Notes.

“There is some room to improve the policy by better targeting hospitals that really serve low-income patients who have no other option of where to get care,” McCarthy said.

When hospitals do have to shutter, Emory’s Thadhani said more state-mandated notice of the closures would allow other area providers to bolster their staffing levels and facilities to accommodate a spike in demand.

“We have to figure out a more efficient system,” he said. “What happened here [in Atlanta] will continue to happen in other states.”