Medicaid expansion could help hospitals financially recover from pandemic, Health Affairs study suggests

Dive Brief:

  • Hospitals in states that expanded Medicaid under the Affordable Care Act have benefited from declining uncompensated care costs and increased Medicaid revenue from 2013 to 2017, a cushion that could put them in a better position to financially recover from the COVID-19 pandemic compared with those in states that haven’t, a study published Tuesday in Health Affairs suggests.
  • For hospitals in non-expansion states, uncompensated care costs rose during the same period, though Medicaid revenue remained mostly unchanged.
  • Mean operating margins declined in both expansion and non-expansion states in 2016 and 2017, however, and those in expansion states faced slightly higher decreases, researchers found.

Dive Insight:

The COVID-19 pandemic has already bludgeoned hospitals’ finances amid stay-at-home orders and widespread cancellations in elective procedures. Now a surge in unemployment rendering some patients unable to access or pay for care is posing a threat to long-term recovery efforts.

But lost revenue may be easier for hospitals in states that have expanded Medicaid to make up than for those in states that haven’t, researchers from the Urban Institute writing in Health Affairs suggest.

Using data from the American Hospital Association and CMS, they built on previous studies estimating the effects of Medicaid expansion on hospitals’ finances with more recent figures through 2017. Thirty-eight states and the District of Columbia have expanded Medicaid while 12 states have not, though legislators can scale back or reverse existing Medicaid expansions, and some have tried.

The finds jibe with other research showing the financial benefits hospitals have seen from Medicaid expansion. Research from June found rural hospitals in particular performed better in expansion states.

From 2013 to 2017, mean annual uncompensated care costs as a share of total expenses declined by 1.8 percentage points for hospitals in expansion states. For hospitals in non-expansion states, those costs rose 0.5 percentage points.

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Beyond spending less to care for uninsured patients, hospitals in expansion states have also benefited from greater Medicaid revenue as a share of total revenue, which increased 2.5 percentage points from 2013 to 2017. Most of those increases happened in 2014 and 2015, though. For hospitals in non-expansion states, Medicaid revenue remained flat from 2013 to 2017.

Operating margins for hospitals in expansion states have also fared better, though not consistently. They rose .54 percentage points in 2014 and 2.1 percentage points in 2015 for hospitals in expansion states.

For hospitals in non-expansion states, operating margins declined 0.58 percentage points in 2014 and increased 0.86 percentage points in 2015.

In 2016 and 2017, operating margins in both expansion and non-expansion states decreased.

Researchers also found discrepancies based on a hospital’s size and location within a state. In both metropolitan and non-metropolitan areas, Medicaid expansion decreased mean uncompensated care costs and increased average Medicaid revenue. But a positive effect on profit margins was larger in non-metropolitan areas, and insignificant in metropolitan areas.

At the same time, Medicaid expansion significantly improved operating margins for small hospitals, or those with fewer than 100 beds, though had little effect on medium- or large-sized hospitals’ margins.

When uncompensated care costs and Medicaid revenue were standardized as percentages of total costs and revenue, medium-sized and large hospitals benefited more than small hospitals.

While the pandemic’s full effect on the healthcare system is still unclear, non-expansion states should consider the positive financial impact of adopting expansion, co-authors Christal Ramos, senior research associate, and Fredric Blavin, principal research associate, in the Health Policy Center at the Urban Institute, wrote.

At the same time, “Policies that erode Medicaid coverage, enrollment, benefits, and reimbursement have the potential to erode the financial gains that hospitals have seen as a result of expansion as well,” they wrote.

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