Unintended consequences of the health reform law could bring financial distress to many of the nation’s 1,500 safety net hospitals, compelling them to form new business models, a just-released report contends.

“State cuts to Medicaid budgets are increasing despite the growing demand for services,” says the report from multi-industry management consulting firm Alvarez & Marsal. “Medicare value purchasing programs, combined with PPACA mandated reductions in disproportionate share hospital payments and Medicare market basket payment updates are likely to exacerbate financial constraints, particularly in states that do not plan on expanding Medicaid coverage. The PPACA will also provide newly insured Medicaid recipients a choice to shop elsewhere, potentially choosing non-safety net hospitals and their associated care delivery systems.”

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