Medicaid Expansion Creates Stark Contrasts Among Hospitals

Hospitals in states that have rejected expansion have seen flat or sagging admissions and little if any reduction in the numbers of uninsured and non-paying patients, while states with Medicaid expansion have seen the opposite, a PwC study finds.

Medicaid expansion under the Affordable Care Act has been in place less than one year, but it's already creating a gaping financial chasm between hospitals in states that accepted the expansion money and those that have rejected it, a PwC Health Research Institute analysis suggests.

The PWC study examined recent earnings data from the nation's five largest for-profit hospital companies that have a combined 538 hospitals in expansion and non-expansion states and found a stark contrast.

Hospitals in the 24 states that have rejected expansion continued to see flat or sagging admissions and little if any reduction in the numbers of uninsured and non-paying patients.

Hospitals in the 26 states and the District of Columbia that expanded their Medicaid coverage to include an additional 7.2 million people, and accepted the billions in federal dollars that accompanied it, saw a significant rise in Medicaid inpatient admission and a concurrent decline in self-pay and charity care.

"Surprise? That is a fair assessment. As we came up with this we were struck by some of the results," says Robert Valletta, US Health Services Leader for PWC. "At this point in time it appears that this is working the way that I think it was intended to work from a governmental perspective. So far, I think we should enjoy what we've found."

Specifically, PwC found that:

• Dallas-based Tenet operates hospitals in five expansion states and saw uninsured and charity care admissions drop 46%, coupled with a 20.5% increase in Medicaid admissions. In the second quarter, Tenet saw a $78 million drop in unpaid care.
• Franklin, TN-based Community Health Systems operates hospitals in 29 states, including 12 expansion states that account for just 23%, of CHS's overall revenue. However, those expansion state hospitals provided a major financial lift because self-pay emergency room visits fell 41%.
  CHS has seen a corresponding 10.4% increase in Medicaid admissions through the first half of this year compared to the same period in 2013. The surge in new paying customers and reduction in uninsured patients, accounts for about $40 million to $45 million of CHS's earnings. CHS expects another $40 million benefit through the second half of 2014.
• HCA Holdings revised its earnings outlook to account for better-than-expected revenue. The company hospitals in five expansion states saw Medicaid admissions grow 32% with a corresponding 48% drop in uninsured admissions through the first half of the year. Uninsured volume also declined 2% in non-expansion states.
• LifePoint Hospitals operates in 20 states—seven of which expanded Medicaid. The health system saw second-quarter earnings of about $158.7 million, a 35.8% increase over the same span in 2013. Of that, LifePoint executives attribute about $13 million to the PPACA's coverage expansion. About 80% of LifePoint's newly-covered admissions came from Medicaid in the second quarter.
• Pennsylvania-based Universal Health Services reported a 30% increase in second-quarter adjusted net income, to $155.6 million compared to $118.9 million during the same period a year ago.

Chip Kahn, president of the Federation of American Hospitals, says Medicaid expansion is doing what it was designed to do when hospitals agreed to support healthcare reform four years ago.

"If you look at the Congressional Budget Office numbers, this is what it was supposed to do, which is [to] allow these many uninsured Americans, most of them relatively low or very low income, to have access to healthcare. That's what's reflected here," Kahn says.

"It also reflects a level of both un-insurance and the pressures from that that hospitals have historically and particularly in the last few years been dealing with."

Although the PwC analysis examines the effect of the expansion on for-profit hospitals, Kahn says the Medicaid expansion money is benefitting the non-profit hospitals as well.

"This isn't a for-profit/non-profit issue," he said. "This is benefitting all of the patients who now have coverage and it is benefitting all of the hospitals in those states regarding the uninsured who previously couldn't pay for the care we provided, both for-profit and non-profit."

"In some states," he added, "public hospitals are seeing a tremendous shift because the people who are still coming to their hospitals so many of them now have coverage."

Although Medicaid's low reimbursements remain a point of contention with all providers, Kahn says many hospitals understand that half a loaf is better than nothing.

"They were coming into the hospital previously and frankly were unable to pay anything or if they were it was a pittance," he said. "Now, they have coverage like other Americans and yes, the payment amounts are significantly less than private payment for private coverage or for Medicare coverage. At the same time, it is compared to what?"

Valletta says hospitals understand that an "an absolute counter to the increase in Medicaid revenue is a reduction in the free care revenue, which is a direct increase to margins and revenues. So, clearly you'd rather have even a small amount of revenue than no revenue at all."

The PwC report avoids arguments for and against the Medicaid expansion. Valletta says it's fair to expect that these ongoing and pronounced disparities will stoke the pressure to expand Medicaid in non-expansion states.

"We are not passing judgment as to whether the states should or shouldn't. We are just stating the facts of what happened in those particular states where there was expansion and the direct contrast to those where there wasn't," he says.

"You can see that even within the large for-profit systems there was a distinct difference in their hospitals that are in expansion states versus not."