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Original Investigation
October 11, 2016

Association Between the 2014 Medicaid Expansion and US Hospital Finances

Author Affiliations
  • 1The Urban Institute, Washington, DC
JAMA. 2016;316(14):1475-1483. doi:10.1001/jama.2016.14765
Key Points

Question  What is the association between the 2014 Medicaid expansion established by the Affordable Care Act and hospitals’ uncompensated care costs, Medicaid revenue, and financial margins?

Findings  In this observational study, Medicaid expansion was associated with significant declines in uncompensated care costs and increases in Medicaid revenue in 2014 among hospitals in 19 states that expanded Medicaid compared with hospitals in 25 states that did not expand Medicaid. Hospitals in states that expanded Medicaid also had better financial margins.

Meaning  There may be financial benefits for hospitals in states that implement Medicaid expansion, although further study is needed to assess longer-term implications of this policy change.

Abstract

Importance  The Affordable Care Act expanded Medicaid eligibility for millions of low-income adults. The choice for states to expand Medicaid could affect the financial health of hospitals by decreasing the proportion of patient volume and unreimbursed expenses attributable to uninsured patients while increasing revenue from newly covered patients.

Objective  To estimate the association between the Medicaid expansion in 2014 and hospital finances by assessing differences between hospitals in states that expanded Medicaid and in those states that did not expand Medicaid.

Design and Setting  Observational study with analysis of data for nonfederal general medical or surgical hospitals in fiscal years 2011 through 2014, using data from the American Hospital Association Annual Survey and the Health Care Cost Report Information System from the US Centers for Medicare & Medicaid Services. Multivariable difference-in-difference regression analyses were used to compare states with Medicaid expansion with states without Medicaid expansion. Hospitals in states that expanded Medicaid eligibility before January 2014 were excluded.

Exposures  Medicaid expansion in 2014, accounting for variation in fiscal year start dates.

Main Outcomes and Measures  Hospital-reported information on uncompensated care, uncompensated care as a percentage of total hospital expenses, Medicaid revenue, Medicaid as a percentage of total revenue, operating margins, and excess margins.

Results  The sample included between 1200 and 1400 hospitals per fiscal year in 19 states with Medicaid expansion and between 2200 and 2400 hospitals per fiscal year in 25 states without Medicaid expansion (with sample size varying depending on the outcome measured). Expansion of Medicaid was associated with a decline of $2.8 million (95% CI, −$4.1 to −$1.6 million; P < .001) in mean annual uncompensated care costs per hospital. Hospitals in states with Medicaid expansion experienced a $3.2 million increase (95% CI, $0.9 to $5.6 million; P = .008) in mean annual Medicaid revenue per hospital, relative to hospitals in states without Medicaid expansion. Medicaid expansion was also significantly associated with improved excess margins (1.1 percentage points [95% CI, 0.1 to 2.0 percentage points]; P = .04), but not improved operating margins (1.1 percentage points [95% CI, −0.1 to 2.3 percentage points]; P = .06).

Conclusions and Relevance  The hospitals located in the 19 states that implemented the Medicaid expansion had significantly increased Medicaid revenue, decreased uncompensated care costs, and improvements in profit margins compared with hospitals located in the 25 states that did not expand Medicaid. Further study is needed to assess longer-term implications of this policy change on hospitals’ overall finances.

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