Public Policy

More studies show Medicaid expansion has benefited hospitals

But state budget troubles continue to threaten hospital finances


In 2016, a series of studies showed the impact of Medicaid expansion on hospitals.1 The news was good: Hospitals in states that accepted Medicaid expansion through the Affordable Care Act saw dramatic reductions in their uninsured patient populations, increases in their Medicaid stays, and reductions in uncompensated care costs.1,2

In 2017, additional data continue to show that Medicaid expansion has been a boon to hospitals, including an April 2017 report published by the Urban Institute and a May 2017 analysis from The Commonwealth Fund.3,4 Both show that some of the hospitals that need it most are reaping the greatest benefits of expansion.

Fredric Blavin, PhD, senior research associate at the Urban Institute’s Health Policy Center

Dr. Fredric Blavin

“We found that small hospitals and hospitals in non-metro areas experienced larger gains in profit margins in states that expanded Medicaid compared to their counterparts in states that did not expand Medicaid,” said Fredric Blavin, PhD, senior research associate at the Urban Institute’s Health Policy Center. His report was an update to an October 2016 study he authored in the Journal of the American Medical Association.5 Notably, he said, these gains were among hospitals that are “financially vulnerable and prone to closures.”

At the same time, Craig Garthwaite, PhD, MPP, lead author of The Commonwealth Fund report, said Medicaid expansion “wiped out roughly half of the uncompensated care faced by hospitals, with relatively little or no decline in nonexpansion states.” To date, 19 states have not expanded Medicaid.

With Medicaid facing an uncertain future, Dr. Blavin said some experts are concerned about what could happen to vulnerable hospitals if Medicaid expansion is repealed or scaled back. Indeed, President Trump and Congressional Republicans have proposed significantly altering Medicaid by either transitioning it to block grants or by capping federal funding for the entitlement.6,7

“We wanted to give people a sense of the stakes of what you’re talking about with repeal of the Affordable Care Act and go back to a system where patients are able to get emergency care at the hospital but not the complete care they get if they’re insured. We’re not going to be paying hospitals for that care, so the hospital has that coming out of their profit margin,” said Dr. Garthwaite, professor of strategy and codirector of the Health Enterprise Management Program in the Kellogg School of Management at Northwestern University, Evanston, Ill.

The Commonwealth Fund report used data from the Centers for Medicare & Medicaid Services (CMS) Hospital Cost Reports to examine 1,154 hospitals in expansion and nonexpansion states. It built on a Health Affairs study Dr. Garthwaite and his coauthors published in 2016.2 The analysis found that between 2013 and 2014, uncompensated care costs declined dramatically in expansion states and continued into 2015, falling from 3.9% to 2.3% of operating costs. Meanwhile, hospitals in nonexpansion states saw uncompensated care costs drop just 0.3-0.4 percentage points. The largest reductions were seen by hospitals providing the highest proportion of care to low-income and uninsured patients and overall savings to hospitals in expansion states amounted to $6.2 billion.

“Any contraction of the Medicaid expansion will reduce overall health insurance coverage and could have important financial implications for hospitals,” Dr. Blavin said. “We are likely to see large increases in expenses attributable to uninsured patients, declines in Medicaid revenue, and increases in uncompensated care burdens that can be a significant financial strain to hospitals.”

As part of a project supported by the Robert Wood Johnson Foundation, the Urban Institute in May 2011 began to track and study the impact of health reform. The report Dr. Blavin authored is part of this endeavor and utilized data from the American Hospital Association Annual Survey and the CMS Health Care Cost Reports to update the 2016 JAMA study. It compared hospitals in expansion states to those in nonexpansion states between fiscal years 2011 and 2015, excluding hospitals in states that expanded before January 2014. It examined hospital-reported data on uncompensated care, uncompensated care as a percentage of total hospital expenses, Medicaid revenue, Medicaid as a percentage of total revenue, operating margins, and excess margins.

The analysis found that Medicaid expansion resulted in a $3.2 million reduction in uncompensated care and a $5.0 million increase in mean annual Medicaid revenue per hospital. Expansion-state hospitals also saw improvements in excess and operating margins relative to nonexpansion state hospitals.

Ajay Kumar, MD, FACP, SFHM, Chief of Medicine at Hartford (Conn.) Hospital

Dr. Ajay Kumar

However, Ajay Kumar, MD, FACP, SFHM, chief of medicine at Hartford (Conn.) Hospital, said his hospital has not observed these same trends. Connecticut expanded Medicaid in 2010. “We have seen some decline in uncompensated care; however, revenue has not improved,” Dr. Kumar said. “Medicaid expansion has not been economically favorable to us, not because of intent of the ACA, but due to state policies.”

In Connecticut, Medicaid reimbursement rates are among the lowest in the country.8 The state uses a provider tax to finance Medicaid but, facing a budget deficit, state leaders have dramatically reduced the amount of money returned to hospitals in recent years.9

“Our Medicaid patient volume has gone up but our margins have declined because the return on investment is so low,” added Dr. Kumar, a practicing hospitalist and member of the SHM Public Policy Committee. He is concerned about what happens if Medicaid is capped or transitioned to a block grant, since “block grants have not been favorable so far … It would further squeeze us.”

In Arizona, Steve Narang, MD, MHCM, a hospitalist and CEO of Banner–University Medical Center Phoenix (B-UMCP), already knows what it’s like when Medicaid funding expands and then contracts. In 2001, the state expanded Medicaid to 100% of the federal poverty level for childless adults but then in 2011, in the throes of recession, the state froze its match on federal dollars. Prior to the freeze, charity care and bad debt made up 9% of B-UMCP’s net revenue. After the state cut to Medicaid, the hospital’s uncompensated care doubled; charity care and bad debt spiked to 20% of net revenue. Once the freeze was lifted and the state expanded Medicaid through the ACA in 2014, bad debt and charity care plummeted to 7% of revenue and remains in the single digits, Dr. Narang said.

“You hear a lot, especially in debates, about Medicaid being bad coverage … From a hospital perspective, if you’re taking care of a patient who is uninsured versus a patient with Medicaid coverage, that hospital is likely better off financially treating the patient with Medicaid coverage,” said Dr. Blavin.

Steve Narang, MD, MHCM, a hospitalist and CEO of Banner–University Medical Center Phoenix (B-UMCP)

Dr. Steve Narang

For Dr. Narang, who practiced as a pediatric hospitalist for more than a decade before becoming a hospital leader, the issue goes beyond the economics of his hospital.

“From a basic commitment to our fellow human beings, are we doing the right thing as a country?” he asked, noting that states and the federal government must address the economic realities of health care while also providing safety nets for patients. “We have to do both. But I have faith that the state and federal government will find a model and we will continue to focus on what we can control.”


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