Medicaid Expansion Benefits Hospital Margins

John Commins, April 6, 2017

A new study from the Urban Institute shows that hospitals in Medicaid expansion states have more revenue, lower uncompensated care costs and fatter operating margins.

Frederic Blavin
Frederic Blavin

Hospitals in Medicaid expansion states increased Medicaid revenue an average of $5.2 million in 2015, reduced uncompensated care by $3.2 million, and improved operating margins by 2.5 percentage points, according to a new report from the Urban Institute.

"This study was an update from an earlier analysis that looked at the effects in 2014, so these changes have not been a one-time effect. These findings have been robust over the past two years," says Frederic Blavin, a senior research associate at the Urban Institute.

According to the University of North Carolina Rural Health Research Program, there have been 78 rural hospital closures across the nation since the Affordable Care Act was passed in 2010, and more than 75% of those closures were in non-expansion states.

The Republicans' American Health Care Act, which died in the House last week before a vote could be taken, would have repealed the state option to expand Medicaid under the ACA. With the ACA emerging intact, Blavin says states that did not expand Medicaid now have the chance to reconsider.

"Particularly for states with large rural populations and small rural hospitals, these findings really indicate that those types of hospitals would gain most financially under Medicaid expansion and would see significant improvements in their profit margins," he says.

"For states that are still considering Medicaid expansion, these findings offer strong evidence that expansion can improve hospitals' payer mix and overall financial outlooks."

Hospitals' Survival May Hinge on Medicaid
Blavin says the 2.5 percentage point average margin bump attributed to the Medicaid expansion could determine whether or not a hospital survives. "Operating margins are basically how profitable it is for hospitals to provide patient services," he says.

"There aren't any estimates in terms of what a given percentage point change in operating margins means for hospital quality, but I imagine that it does provide a lot of financial relief for hospitals and it could potentially free up additional resources for hospitals to provide high quality care."

John Commins

John Commins is a senior editor at HealthLeaders Media.

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