While the current economic conditions are putting unprecedented pressure on all hospitals, perhaps none are more vulnerable than safety-net providers. As the authors of a recent report for the Commonwealth Fund's Commission on a High Performance Health System note, Medicaid consists of "anywhere from 25 percent to well over 50 percent of the revenue of safety-net hospitals." With so many state budgets in crisis, Medicaid payments, which are already low, are being targeted for even more cuts. The authors also point out that Medicaid policies often "encourage costly inpatient services over more cost-effective outpatient services." There's an additional dilemma on the horizon: if the Supreme Court upholds the Affordable Care Act, Medicaid will expand to cover more than 52 million people, up from 35 million. In March, the Commonwealth Fund commission issued a report on safety-net hospitals and offered these recommendations:

1 | Increase Medicaid rates: States should increase Medicaid rates paid to hospitals with the highest share of Medicaid patients and lowest share of privately insured as a share of all their patients, contingent on meeting quality targets and delivering high-quality, accessible, cost-effective care. Because there is no clear demarcation as to when safety-net status begins, it is recommended that states consider the degree to which these rate increases accomplish the goals of preserving access to care for low-income populations and encouraging improved performance on indicators of quality and efficiency. This additional investment should be structured consistently with the overarching goals of transparency and accountability.

2 | Inpatient/outpatient services: In making targeted investments in Medicaid payments, states should consider the relationship between inpatient and outpatient services, incentivizing the delivery of care in the most appropriate and efficient setting and supporting clinical integration across hospitals and community-based settings.

3 | Insufficient capacity: States should invest in reimbursement rates for services where there is insufficient capacity to meet the needs of Medicaid beneficiaries and where increased Medicaid payments may enhance access.

For more information, visit www.commonwealthfund.org.