Hospitals Saw No Effect on Margins After Medicaid Expansion

July 05, 2017 - The net impact of Medicaid expansion on non-profit hospital finances was close to zero because uncompensated care cost reductions did not offset Medicaid reimbursement shortfalls, a recent AcademyHealth research revealed.

After analyzing IRS filings from 1,700 hospitals between 2009 and 2015, Northeastern University researchers uncovered that Medicaid expansion resulted in about a 25 percent decrease in uncompensated care costs.

However, the expansion programs also increased the difference between Medicaid reimbursement rates and the actual care costs of treating Medicaid patients. The American Hospital Association (AHA) reported that Medicaid reimbursement was $16.2 billion short of actual hospital costs for treating beneficiaries in 2015.

According to the AcademyHealth study, non-profit hospitals in Medicaid expansion states experienced a 15 percent increase in Medicaid payment shortfalls.

Non-profit hospitals located in states that had fully implemented Medicaid expansion program in 2014 faced the greatest impact in terms of both decreasing uncompensated care costs and increasing Medicaid reimbursement shortfalls, researchers added.

In contrast, similar hospitals in non-expansion states saw minimal changes to their uncompensated care costs and Medicare payment shortfalls.

The effects of Medicaid expansion benefits and Medicaid reimbursement shortfalls are particularly pronounced in Montana. The Montana Hospital Association recently reported that non-profit and for-profit hospital margins dropped by 40 percent during the state’s first full year of Medicaid expansion implementation.

“More Montanans are covered by health insurance and are receiving the care they need, at the time they need it,” Dick Brown, the association’s CEO, stated in a press release. “At issue are the payment shortfalls that hospitals continue to absorb in order to provide around-the-clock care in our rural communities.”

Montana’s Medicaid expansion program resulted in more consumers enrolling in government-sponsored coverage, such as Medicaid. As a result, commercial coverage fell by 11 percent between 2015 and 2016.

Consequently, hospitals saw more Medicaid patients coming through their doors. Medicaid represented about 16 percent of patient charges by 2016 versus just 11 percent in 2015.

Hospitals also had to accept Medicaid reimbursement rates despite the rates falling below actual care costs according to the expansion program rules.

“With reimbursement from Medicare, Medicaid and some managed care plans falling below the cost to deliver care, cost-shifting and the reliance on other revenue streams become more acute,” Brown explained.

Hospitals across Montana saw their uncompensated care costs drop by over 53 percent from 2015 and 2016 and patient bad debt also fell by almost 36 percent in the same period.

However, the decrease in uncompensated care costs and patient bad debt was not enough to balance Medicaid reimbursement shortfalls, the study concluded. The savings were also not enough to offset consumers delaying or avoid necessary care because of high-deductible health plans and increasing patient financial responsibility.

Hospitals in Medicaid expansion states may not be experiencing the financial improvements expected from insurance coverage increases, the two studies suggested.

Recent research from Robert Wood Johnson Foundation and Urban Institute also revealed that hospitals located in 19 early Medicaid expansion adoption states only saw operating margins grow by 0.8 percentage points in 2014 and another 1.9 percentage points in 2015.

Although hospitals in non-Medicaid expansion states fared worse. Hospital operating margins for facilities in non-expansion states actually fell by 0.6 percentage points in 2014 and only increased by 0.8 percentage points in 2015.

Non-profit hospitals may particularly feel the financial implications of Medicaid expansion, the AcademyHealth study indicated.

“Although Medicaid expansion has been presented as a way to improve hospital finances, little consideration has been given to payment shortfalls,” AcademyHealth researchers wrote. “Policymakers need to consider the adequacy of payment rates as part of expansion initiatives.”