Stimulus helps offset funding losses for safety net providers

Federal stimulus funding provided in the 2009 American Recovery and Reinvestment Act (ARRA) has helped safety net providers weather the economic storm, partially offsetting reductions in state, local and private funding.

The recession’s impact on safety net providers hasn’t been as severe as initially predicted, according to a recent study by the Center for studying Health System Change (HSC) that was funded by the Robert Wood Johnson Foundation.

Enacted in February 2009, ARRA included higher matching funds for state Medicaid programs, increased funding to support hospitals serving disproportionate numbers of low-income and Medicaid patients and grants to federally qualified health centers (FQHCs).

Drawing on data collected from five regions – Cleveland, Greenville, S.C., northern New Jersey, Phoenix, Ariz., and Seattle – the study indicates that safety net providers experienced increased demand for care before the recession as employer-sponsored coverage declined and other providers became reluctant to treat uninsured and Medicaid patients. However, unemployment and uninsured rates will likely remain high for some time despite some signs of an economic recovery at the end of 2009, and greater demands on safety net providers likely will persist even as federal stimulus funding ends.

"Safety net providers have adopted strategies to stay financially viable, but many believe they have not yet felt the full impact of the deepest recession since the Great Depression," said Laurie E. Felland, an HSC senior health researcher and co-author of the study.

Other factors may have also helped the safety net in the five targeted regions. For example, federal expansion grants for community health centers during the past decade have increased capacity, and programs to help direct people to primary care providers may have helped stem the expected surge in emergency department use by the uninsured during the downturn.

According to “The Economic Recession: Early Impacts on Healthcare Safety Net Providers,"

  • While many FQHCs have benefited from both ARRA funding and federal expansion grants over the past 10 years, free clinics face more serious financial strains because they are ineligible for stimulus funding and more dependent on private donations.
  • Free clinics don't receive enhanced Medicaid reimbursements like FQHCs and other community health centers deemed federal "look-alikes."
  • Many providers reported trying to control labor costs, a significant portion of their operating budgets. Varied degrees of layoffs or reductions through attrition were reported in all of the communities, but wage freezes were more common.
  • The recession has produced some benefits for providers. In some cases, the costs of leasing facilities have declined significantly, and providers that were expanding typically have found larger, more qualified applicant pools for financial and administrative positions.
  • Employees were more likely to stay in their positions than risk going elsewhere, reducing recruiting and training costs.

Although safety net providers in the five regions have so far weathered the recession, the downturn has placed additional strain on already-limited capacity and tenuous financial situations.The effects of the recession are highly localized, and some safety net hospitals in other communities have encountered significant financial problems and service cutbacks.

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