If Grady Fails By Brian Klepper

In an extraordinary move earlier this week, the politically-appointed Fulton-DeKalb Hospital Authority, the governing body over Atlanta’s Grady Health System, unanimously and voluntary stepped aside, to be replaced by a new non-profit corporation. Projecting a $55 million deficit this year, the hospital had just three weeks of cash on hand. It needs $300 million immediately for sorely needed renovations, and must deal with $63 million in accumulated debt to its biggest creditors, Emory University Medical School and Morehouse School of Medicine. New oversight was the predicate for a hoped-for financial bailout from business, philanthropies and financial institutions.

Other Atlanta hospitals are undoubtedly concerned that Grady will fail, and will probably do everything possible to support a bailout. The last thing they want is for Grady’s patients to come to their facilities. Now would be a good time to rally business leaders and legislators, who nearly always go to fancier hospitals, which of course has been a big part of the problem.

Grady’s turmoil should be recognized as the first small shock of much larger seismic event, long in the making, a concrete sign of America’s relentlessly intensifying health care crisis. The wrath falls on our most vulnerable – those with health problems or with few financial resources – as well as on the institutions and professionals that care for them.

Nearly every large and mid-sized city has a Grady that struggles with similar issues. In addition to being the health care resource to the poor, they are often academic centers – clinicians-in-training need SOMEBODY to learn on. They can be home to a region’s highest expertise, particularly related to crisis care. Many house their community’s neonatal intensive care unit and burn unit, as well as the level 1 trauma center, which brings with it disaster preparedness responsibilities. These are precious services that we somehow EXPECT will be there when we need them. So if a safety net hospital closes, the loss to the community and the replacement resources required are immense.

Grady, like other safety nets around the country, isn’t failing due to mismanagement, although some of that almost certainly plays a role. Instead, it is the slowly-boiled frog, its financial base eroded over decades as it increasingly became the hospital of the inner city, the center for care for Atlanta’s low-income and uninsured residents. As governmental support steadily dwindled, demand for its services rose. Fully 75 percent of Grady’s patients are on Medicaid, which pays less than the cost of care. Only 7 percent have commercial insurance.


Strained to the breaking point like other safety nets, Grady provides far greater levels of uncompensated and ambulatory care while generating far lower margins than non-safety net acute care hospitals. A study released earlier this year by the National Association of Public Hospital and Health Systems found that, between 1998-2004 and compared to non-safety net acute care hospitals, the average safety net provided three times the level of uncompensated care as a percentage of total expenses (20% vs. 5%), more than three times the volume of ambulatory care services (meaning emergency and outpatient visits), and saw their margins plummet so low (in 2004, 0.5 percent vs. 5.2 percent for non-safety nets) that investments to maintain infrastructure become difficult to impossible.

Safety net hospitals are famous for struggling through, but presumably there’s a calculus here. As small businesses are increasingly priced out of the coverage market, and as state government, facing budget crisis, cut back on publicly funded coverage, the burden on the safety nets will continue to rise and the resources will continue to decline. At some point the demand-resource mismatch will give way, and some will topple. Their patients will seek care at other hospitals, which will simply transfer the burden elsewhere.

We can keep the safety nets afloat. The most logical solution would establish universal coverage for "basic" care services – we have to define what "basic" means – which would associate dollars with each presenting patient. We could also update the EMTALA laws that govern how emergency patients are seen, so those seeking minor care can be managed in less expensive settings.

But these answers don’t seem likely at the moment. Despite current rhetoric, universal coverage legislation is doubtful unless we can find ways to significantly drive down cost. Legislation that drives out unnecessary health care spending would reduce health industry revenues, though, an unlikely prospect so long as lobbyists drive Congressional policy.

Still, we should think deeply about what Grady’s troubles really mean, and consider this case not in isolation, but as possibly representative of systemic forces. Without significant system change, we could see more safety nets falter in the next few years. Each community where a failure occurs will gradually appreciate the importance of its loss. As the poor turn to the remaining hospitals for care, the cascading impacts on the larger system could severely test America’s commitment to care that is independent of an ability to pay.

And that would challenge our core values as a nation.

6 replies »

  1. Get ready for another hit. In January, the number of patients participating in high deductible health plans will take its big annual enrollment jump. It went from about 1 million in March 2005 to over 4 million in January 2007. Average individual deductibles are about $2500. The safety net hospitals are already seeing the patients with diminished ability to pay. Those who have coverage are now going to be liable for 5-10 times as much before the hospital sees a dollar from the insurance companies.
    If Grady falls, it might not just be the beginning of a trend. It could be a Black Swan.

  2. “But how does this problem begin to enter mainstream consciousness by disrupting services for everybody else?”
    I guess Cliff that if patients of safety net hosptials can find and afford transportation to the for profit hospitals, and they aren’t refused treatment at the door, then those ER wait times will get much larger. I think then you’ll find that there will be a way found to put those safety net patients back where they belong. Kinda like in an education voucher system when inner city blacks try to use their vouchers to attend those quality white suburban schools, there’ll be a way found to block use of those, “give them a choice” vouchers.

  3. so what does the cascading impact on the rest of the system look like? how does it play out in a community like Atlanta or Washington D.C. where these saftey net hospitals are unraveling? Seems to me that the other ER’s break, then the other hospital-based clinics, and then the community health centers become overwhelmed. But how does this problem begin to enter mainstream consciousness by disrupting services for everybody else?

  4. Peter,
    I believe the extraordinarily high number of outpatient visits results from the fact that large numbers of low-income and uninsured patients receive their primary care directly through the safety nets. Some of this is funded through Medicaid and state/local moneys, but some is at the expense of the hospitals themselves.
    I’ll have to research the reasons for the decline in hospital margins. I believe it had to do with managed care contracts at the time. Later, many non-safety net acute care hospitals began to consolidate and leverage their market positions, and the difference in financial performance between the two sectors accelerated.

  5. Brian would the difference between the averge number of outpatient visits of safety net hospitals and acute care hosptials (393,679 – 118,252) be access to covered primary care?
    I’m also interested in why the big drop in hospital margins was so large between 1998 and 1999? And what changed in 2001 where the spread in margins started to really diverge between safety net and other hospitals?

  6. brian- agree this is an important story.
    I am very interested in your recommendations on how to “update EMTALA” to meet your goals…
    please share