Uncompensated hospital care falls in Medicaid expansion states, but hospitals still worry

Medicaid expansion and other changes related to Medicaid payments are very important to the financial viability of hospitals. For example, according to a Kaiser Family Foundation (KFF) analysis, the expansion of Medicaid coverage under section 2001 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) helped hospitals by producing a nationwide decline in uncompensated care from $34.9 billion in 2013 to $28.9 billion in 2014, the year the expansion took place. At the same time, however, KFF found that despite the financial gains from declining uncompensated care, hospitals fear that these gains may be offset by a higher volume of Medicaid payments that may be lower than the actual hospital costs.

The KFF analysis confirms that most of the reduction in uncompensated care occurred in Medicaid expansion states. Specifically, in expansion states uncompensated care declined from $16.7 billion in 2013, to $11 billion in 2014, a 35 percent reduction. In non-expansion states, uncompensated care dropped from $18.1 billion in 2013, to $17.9 billion in 2014, a reduction of less than one percent.

KFF points out that the federal disproportionate share hospital (DSH) allotments, totaling $11.7 billion in 2014, will drop by $2 billion in fiscal year (FY) 2018 and by a total of $43 billion between FY’s 2018 and 2025. As a result, KFF’s survey of hospitals and their associations found a growing concern that the increase in revenue from Medicaid expansion will not fully offset the reduction in federal Medicaid DSH payments.

KFF notes that the coming reduction in DSH payments may affect safety net hospitals, in particular, due to their (1) high dependence on Medicaid DSH funds, (2) high numbers of uninsured patients, (2) few privately-insured or Medicare patients, and (4) generally weaker financial condition.

In addition to the effect of reduced DSH payments, KFF warns that hospitals may also be hurt if CMS limits Medicaid supplemental payments to hospitals in the future. This is because many hospitals rely on supplemental payments to increase payments above their actual costs. KFF believes that the impact of reductions in supplemental payments will ultimately depend on whether states will offset reductions with increases to their Medicaid base rates paid to hospitals.