Medicaid expansion improved financial health of nonprofit hospitals

A study comparing the finances of nonprofit hospitals in Medicaid expansion states to nonexpansion states appears to show that Medicaid expansion increased hospital revenues and decreased the cost of caring for low-income patients, while failure to expand Medicaid hurt the hospitals’ bottom lines. The study, released by the Kaiser Family Foundation, examined discharge volumes and finances in hospitals affiliated with Ascension Health, a large system of Catholic hospitals, during the last three quarters of 2013 and the first three quarters of 2014, i.e., from April 1, 2013, through September 30, 2014.

Ascension Health

Ascension Health is a subsidiary of Ascension, the nation’s largest not-for-profit health system, with 131 hospitals and 30 senior care facilities in 23 states and the District of Columbia (D.C.). Its hospitals are located primarily in large metropolitan areas in 16 states and D.C., including both expansion states such as Illinois, Maryland, and New York, and nonexpansion states, including Florida, Indiana, and Texas. Service to the poor is part of its stated mission; Ascension hospitals provided $600 million in direct charity care to low-income and uninsured patients in 2014.

Medicaid vs. uninsured/self-pay discharges

Hospitals in states that expanded Medicaid had higher rates of growth in Medicaid discharges and decrease in uninsured/self-pay discharges compared to nonexpansion states. In expansion states, the number of Medicaid discharges rose 7.4 percent, from 17.4 to 21.2 percent of all discharges. In nonexpansion states, the number of Medicaid discharges grew 1.4 percent. Even more striking was the change in uninsured/self-pay discharges, which dropped 32.3 percent in expansion states and 4.4 percent in nonexpansion states. As a percentage of total discharges, uninsured/self-pay discharges dropped from 4 percent to 3 percent in expansion states and from 7 percent to 6 percent in nonexpansion states.

The growth in Medicaid discharges in expansion states was magnified after Michigan implemented its expansion on April 1, 2014, three months after the other states that had committed to expansion. The growth in Medicaid discharges between the first and the third quarters of 2014 was attributable almost entirely to Michigan’s expansion, which included a substantial increase in the income limits for adults.

Revenue

Total revenue in all Ascension hospitals except those in Arizona (which did not have complete data) grew about 2 percent, from $13.3 billion to $13.5 billion. Medicaid revenue in expansion states grew about $46 million. In expansion states Medicaid revenue from outpatient services grew 13 percent, while Medicaid revenue for inpatient services grew 4.9 percent.

In nonexpansion states, Medicaid revenue for inpatient care dropped in expansion states. Rate reductions or freezes may have contributed to the decline. Medicaid revenue from outpatient care grew 2.9 percent in states that failed to expand Medicaid.

Costs of providing care

The cost of providing care stayed about the same in expansion states. Ascension’s cost of charity care dropped $58 million between the last three quarters of 2013 and the first three quarters of 2014. The decrease was not evenly distributed, however. In states that expanded Medicaid, the cost of charity care dropped nearly 40 percent, from $85 million to $50 million, while in nonexpansion states, the cost of charity care dropped from $368 million to $345 million, a decline of about 6.2 percent. The Medicaid shortfall, i.e., the difference between what Medicaid pays and the costs of providing Medicaid services, grew everywhere, but in expansion states, the $23 million shortfall was offset by the $35 million saved on charity care. In nonexpansion states, the decline in the cost of charity care ($23 million) was outweighed substantially by the $99 million increase in the Medicaid shortfall, so that the total costs of caring for low-income patients was quite significant.

Disproportionate share hospital payments

Initially, the cost of Medicaid expansion was to be made up, in part, by decreases in the states’ allotments for payments to disproportionate share hospitals (DSH), i.e., those that serve a greater percentage of low-income patients. Once states had the option not to expand Medicaid, it was necessary to protect DSHs in those states from the precipitous drop in revenue that would have resulted.

The cuts to DSH allotments have been postponed from the original 2014 implementation; most recently, the Medicare Access and CHIP Reauthorization Act (P.L. 114-10) extended the delay to fiscal year 2018. Nevertheless, the authors and others are concerned that reduction of the DSH allotments will hurt hospitals that serve the poor.