The Definitive Blog

Why Not All Hospitals Would Suffer Under a Full ACA Repeal

As the repeal of the Accountable Care Act looms, many within the healthcare industry are uncertain over what its replacement will look like and how it will affect insurance coverage, reimbursement, and hospital revenue. While many have projected what could happen given a full repeal without replacement, it’s worth looking back to see how hospitals in general have fared financially since the first regulations of the ACA were implemented in 2010. Overall, hospitals have seen a large decline in discharges, strong growth in patient revenue, but a wide variation in operating income and reductions in bad debt.

The numerous provisions of the ACA were implemented gradually between 2010 and 2015, with perhaps the most important being the launch of the public health insurance exchanges in 2013 and the expansion of Medicaid in 30 states in 2014. Other minor but nonetheless relevant changes for hospital finances included reductions in annual Medicare reimbursement increases and mandated coverage of preventative benefits in 2010, value-based purchasing and other quality-related penalty/incentive programs that started in 2013, and the elimination of annual caps on health insurance coverage and prohibition of denials for pre-existing conditions in 2014. Together, the provisions had strong effects on hospital revenue. In addition, the US recession played a significant role during this time by reducing healthcare utilization and slowing overall health spending growth from 2007 to 2013, according to several studies, making the effects of the ACA more difficult to identify. Even so, the data shows some clear financial trends.

From 2010 to 2015, data from Definitive Healthcare shows that among all hospitals, net patient revenue and operating income grew by a median of 15.8% and 6.9%, respectively. Looking by hospital type, critical-access and short term acute care hospitals witnessed similar patient revenue growth (17.1% and 15.2%), but had substantially different changes in median operating incomes (-18.3% and 10.3%). The wide disparity can be explained by several factors. According to a recent case study by the Kaiser Family Foundation, rural hospitals had declining area populations and privately insured patients, smaller Medicare and Medicaid reimbursement payments (the latter possibly due to state-level budgetary decisions), and failed to adopt value-driven care delivery models. The nationwide decline in discharges due to better treatment techniques and financial incentives was also more pronounced at critical-access hospitals (22.4% vs 8.6%), adding to the revenue loss.

Change in Median Hospital Financial Figures, 2010-2015

Operating Income Net Patient Revenue Discharges Bad Debt*
Short Term Acute Care 10.3% 15.2% -8.6% -2.8%
Critical Access -18.3% 17.1% -22.4% 2.8%
All Hospitals 6.9% 15.8% -12.1% -0.8%

*Growth from 2011-2015. Source: Definitive Healthcare data

The first major event that significantly affected hospital finances was the launch of the public health insurance exchanges in 2013. The introduction of subsidized premiums greatly expanded the commercially insured population, and according to the data, marked the start of improving hospital finances. Median operating income, net patient revenue, and discharges dramatically increased from 2013 to 2015 compared to 2010 to 2012 at both critical-access and acute care hospitals. In addition, the median hospital bad debt declined after the exchanges opened despite growing from 2011 to 2012.

Change in Median Hospital Financial Figures, 2010-2015

Pre-Exchange 2010-2012 Post-Exchange 2013-2015
Operating Income -7.7% 18.9%
Net Patient Revenue 6.0% 13.1%
Discharges -5.3% -3.0%
Bad Debt 7.1% -7.8%

Source: Definitive Healthcare data

The second event was the expansion of Medicaid eligibility in several US states. 28 states adopted the looser eligibility requirements in January 2014, with two others joining them later in the year. Much like the advent of subsidized plans under private insurers, the Medicaid expansion increased overall coverage and seems to have yielded positive benefits for hospitals due to greater utilization and less bad debt, at least for states that opted to expand the program. For years 2014 and 2015, both expansion and non-expansion hospitals experienced a growth in operating income, but the gain was higher for expansion facilities. In addition, hospitals in expansion states had less of a decline in median discharges (-11.9% vs 13.5%). The greatest difference between the two groups of hospitals lies in bad debt levels. Non-expansion hospitals had a slight growth in bad debt with a median increase of 1.1%, but bad debt at the median expansion hospital declined by 15.7%.

Change in Median Hospital Financial Figures, 2014-2015

Operating Income Net Patient Revenue Discharges Bad Debt*
Expansion Hospitals 17.5% 5.6% -11.9% -15.7%
Non-Expansion Hospitals* 11.6% 5.8% -13.1% 1.1%

*Excludes AK, IN, PA Source: Definitive Healthcare

The data also show a strong correlation between hospital’s case mix and financial gains under the ACA. Since the Act has several provisions designed to support the chronically ill, such as pre-existing condition waivers, hospitals with high case mixes would logically witness substantial coverage changes in their patient population, which usually stays constant over time. On the other hand, hospitals with a healthier and well-insured patient base would see less benefit. When the hospitals are divided by quartiles, facilities with the highest case mixes did see the most gains in operating income, both from 2010 to 2015 and especially after the launch of the exchanges from 2013 to 2015. The median hospital in the first quartile, the hospitals with the highest case mixes, experienced a 26 percent increase in operating income over the five-year period, which jumped to a 111% increase from 2013 to 2015, while the lowest quartile median hospital’s operating income declined by 38% and 87 %, respectively.

Change in Hospital Median Operating Income by Case Mix Quartile

1st Quartile 2nd Quartile 3rd Quartile 4th Quartile
2010-2015 26.3% 19.8% -8.3% -37.6%
2013-2015 111.0% 67.7% -2.2% -87.2%

Source: Definitive Healthcare data

The finding is not terribly surprising given the way the ACA is structured and supports a key fact not usually highlighted in most predictions of the ACA’s repeal on hospital finances, such as one notable study from the AHA did by predicting that hospital revenues would decline by $165.8 billion between 2018 and 2026. The data does suggest that several measures of a hospital’s financial health improved at least in part due to provisions in the ACA, but it also shows that the gains weren’t equally distributed. In fact, the study states that the various penalties and reimbursement cuts incorporated into the Act also represent a total of $289.5 billion in lost revenue. In other words, a full repeal of the ACA that restored Medicare funding cuts and did away with penalizing programs would actually improve hospital finances as a whole by an estimated $124.3 billion. Most analyses assume that such payments would not be restored, given that existing proposals to repeal the ACA have not included guidance to that effect. Even so, it’s an important caveat to remember when looking at the financial impact of healthcare reform on hospitals.

Definitive Healthcare has the most up-to-date, comprehensive and integrated data on over 7,700 hospitals, 1.4 million physicians, and numerous other healthcare providers. Our databases include current and historical financial figures for hospitals, health systems, and more.

Related Posts