Hospitals in non-Medicaid expansion states less hampered by charity care

Hospitals that treat a large number of poor and uninsured patients were extremely invested in the Medicaid expansion available to states under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). If a state did not choose to expand, less Medicare and Medicaid funding would go to hospitals, which would still have to provide charity care. Many hospitals anticipated extremely tough financial situations, but the fears were largely unfounded. An examination of several hospitals in Florida, Texas, Georgia, Tennessee, South Carolina, Virginia and Kansas revealed that many of these “safety-net” hospitals fared better last year than in 2013.

Wait, what? Why?

Hospitals agreed that the single biggest reason for the better financial numbers was an improving economy, which led to several improved factors. The number of patients that could not pay their bills was drastically reduced. The bolstered economy resulted in increased local property and sales tax revenues that were meant for publicly funded local hospitals.

An overall drop in charity care also came from more affordable insurance plans. Some hospital systems, like Florida-based Broward Health, reported that charity care dropped 30 percent. This drop resulted in an increased number of previously-uninsured patients obtaining health care coverage through Health Insurance Exchanges.

Don’t get too excited

Not all hospitals did so well. Harris Health System, located in Houston, Texas, is responding to a $14 million budget shortfall by laying off 108 workers. Almost two-thirds of patients receiving treatments from Harris are uninsured, and only three percent of its patients have private insurance. This is a much higher amount than most safety-net hospitals are facing, blamed on Texas’s decision not to expand Medicaid.

Medicaid cuts are on the horizon next year. When the ACA was drafted, a nationwide expansion of Medicaid was required. In anticipation of the following drastic decline in uninsured Americans, the law also called for major cuts to special funding to disproportionate share hospitals (those seeing the largest share of the poor). The Supreme Court issued a ruling that made expansion optional, putting a dent in the plan—but the funding cuts are still scheduled to take place.

Safety-net, not so safe

These types of hospitals face several types of struggles. The amount of income they see from the large proportion of Medicaid-enrolled patients is less than if these patients were covered by private insurance or even Medicare. The hospitals then have less money to train doctors and provide high-cost services (that often lose money for the hospitals) such as trauma and burn care. Like any business, hospitals have to buy new equipment, plan for expansion, and pay for labor—all of this with an average profit margin of three percent for nonprofit hospitals.

Bye-bye, subsidies!

States are already responding to the drop in charity care. Following a reported decline of 43 percent in the amount of charity care given by hospitals in New Jersey last year, Governor Christie proposed a cut in charity care reimbursements by 23 percent. The charity care decline is attributed to an additional 390,000 residents covered under the NJ FamilyCare program following Medicaid expansion. Suzanne Ianni, president and CEO of the Hospital Alliance of New Jersey, stated that hospitals are only paid 70 cents of every dollar’s worth of care provided to Medicaid recipients. She also points out that the problem is more complex than it first appears, because covering Medicaid enrollees can be more expensive for hospitals than providing charity care for the uninsured, because those with Medicaid benefits seek more health care services than those without any coverage at all. The proposed cuts come in anticipation of the decrease in federal matching for charity care, which starts in 2017.