Medicaid Expansion Lessened Hospital Closures: Study

Also impacting hospital survival are a series of Medicare payment cuts and lapses in supplemental payments.

Jan. 9—The expansion of Medicaid eligibility under the Affordable Care Act (ACA) helped prevent some hospital closures in those states, according to new research.

The study by researchers at the University of Colorado found that the Medicaid expansion was associated with improved hospital financial performance and substantially lower likelihoods of closure, especially in rural markets and counties that had large numbers of uninsured adults before Medicaid expansion.

“In states that expanded Medicaid, those hospitals performed financially better,” said Gregory Tung, an assistant professor in the Colorado School of Public Health at the University of Colorado, and one of the study’s authors. “Also, those hospitals in the states that expanded Medicaid were much less likely to close than hospitals in states that did not expand Medicaid.”

The findings also underscored the greater sensitivity of rural hospitals to the adverse financial consequences of not expanding Medicaid, which has been the choice of 18 states.

The authors compared hospital closures in both expansion and non-expansion states in periods spanning 2008–12 and 2014-16. Closures increased by 0.429 per 100 hospitals in non-expansion states, compared with a decrease of 0.33 in expansion states.

“It’s a rare event, but it’s significant,” Tung said, referring to roughly 20 hospital closures that occurred in all states in the latter two-year span.

“We posit that the primary mechanism that underlies the relationship between hospital closures and Medicaid expansions is the substitution of utilization by patients with Medicaid coverage for utilization by uninsured patients,” the authors wrote.

Among the earlier research echoed by the study was a 2016 JAMA study that found hospitals in expansion states had significantly better financial performance in 2014 than hospitals in non-expansion states.

The higher financial risk for rural hospitals in non-expansion states also echoed concerns raised by industry analyses, such as a 2016 report by iVantage Analytics, which found 673 rural hospitals at risk of closure.

Maggie Elehwany, vice president of government affairs and policy for the National Rural Health Association, said the financial situation continues to deteriorate. Specifically, the share of rural hospitals operating at loss increased from 41 percent in 2017 to 44 percent now, according to iVantage data.

“We’re trending in the wrong direction,” Elehwany said in an interview.

Since around the time the ACA was enacted, 83 rural hospitals have closed, accord to tracking by the Sheps Center for Health Services Research at the University of North Carolina. Sixty four of the 83 closed hospitals are located in states that have not expanded Medicaid.

Why the Closures

Although Medicaid revenue is considered a factor,  many issues affect the financial health of hospitals.

“We don’t know why they close,” said Marcelo Perraillon, an assistant professor in the Department of Health Systems, Management, and Policy at the University of Colorado, and a study coauthor. “We don’t know what the most important factor is.”

For instance, since 2010 hospital closures in both expansdion and non-expansion states could have been prompted in part by the anticipated implementation of cuts to Medicaid disproportionate share hospital (DSH) payments as stipulated in the ACA, the study noted.

“For some of them it might have been, ‘Well, we’re not going to get the DSH payments and my state is not going to expand Medicaid, therefore we have to close,’” Perraillon said in an interview. “For others, it might have been for other reasons, but we can only speculate why.”

After several years of delay, the Medicaid DSH cuts went into effect in FY18.

The DSH cuts have not universally impacted rural hospitals because not all of those hospitals qualified for the payments, given the differences in the state formulas that are used for disbursement.

Utilization Unclear

It’s not yet clear which hospital services financially benefited from newly covered Medicaid patients, Tung said in an interview.

The Centers for Disease Control and Prevention identified a surge of 11 million in emergency department visits (ED) in 2014, fueled by Medicaid expansion. ED visits that year by beneficiaries in Medicaid and the Children’s Health Insurance Program increased by 25 percent, or more than 10 million, according to a report. That increase vastly outstripped a decline of 2.9 million in visits by the uninsured.

Future Risks

The financial challenges for rural hospitals could worsen if several federal payment provisions are not addressed, Elehwany said. For instance, a package of Medicare “extenders,” or add-on payments—which benefit many rural hospitals—lapsed in December and requires congressional reauthorization.

“If they don’t get those slightly enhanced payments, the number of hospitals operating at a loss is going to explode, and we’re certainly going to see many, many rural hospital closures in the very near future,” Elehwany said.

Additionally, hospital advocates are pushing for the government to lift federal limits on the amount of bad debt that hospitals can write off.

“Because the ACA isn’t working the way it should and there are actually more people not being able to afford their care, these rural hospitals need to be allowed—as they have in the past—to offset their bad debt,” Elehwany said.

Bad debt has been falling for hospitals nationally but has more than doubled at rural hospitals since the ACA’s passage, according to Elehwany. Overall, U.S. hospitals provided $38.3 billion in uncompensated care in 2016, up from $35.7 billion in 2015, according to the latest data from an American Hospital Association annual survey.

The reason for the dichotomy in bad-debt statistics is that in rural areas, people with serious health conditions who are enrolled in high-deductible health plans (HDHPs) obtain care at their local critical access hospital (CAH). By the time those hospitals stabilize the patients and transfer them to suburban and urban hospitals—as required by federal rules—the patients have exceeded their deductibles and insurers pay for the rest of their care. But deductibles for HDHP enrollees are never paid to CAHs because many policyholders cannot afford them, Elehwany said. That lack of payment hits CAHs’ bottom line. 

Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare