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Why Some States Declined to Expand Medicaid

The vast majority of healthcare organizations and professional groups support Medicaid expansion, the Obamacare initiative to widen eligibility for Medicaid to individuals earning up to 138% of the federal poverty level. To them, the benefits of expansion, such as less bad debt and uncollectible bills, better patient access to services, and an overall healthier patient population, outweigh the additional costs for states to bear after the full federal reimbursement period expires. But a subsequent Supreme Court ruling left the decision to implement Medicaid expansion up to the individual states. To date, 31 states and DC have implemented the expansion, the majority of them launching new Medicaid eligibility guidelines starting in 2014. Why hasn’t it been approved in the other 19? Often it is attributed to the state’s dominant political party, but that alone isn’t a reliable indicator, given that red states like Ohio and North Dakota expanded the program, while others like Maine and Virginia did not. Judging from a review of Definitive Healthcare data, there is another possibility: hospitals in non-expansion states were in a better financial position and so there was less political pressure to widen Medicaid eligibility.

In terms of operating performance, hospitals in non-expansion states fared significantly better on average than those that expanded Medicaid from 2010 to 2015. During the five-year period, hospitals in Medicaid expansion states had an average operating loss of about $8.7 million per year, compared to an operating gain of $2.1 million per year in non-expansion states. The difference is likely attributable to demographic factors, such as population (expansion states include roughly 30 million more people), and because hospitals in expansion states may have higher density patient service areas (the median expansion hospital had 34 more beds than the median non-expansion facility), which usually have a less favorable payor mix. Median annual net patient revenue for expansion hospitals was also between $33 and $37 million higher than at non-expansion facilities from 2010 to 2015, reflecting their greater patient load. The difference in operating income is far less pronounced when comparing median figures, and while the non-expansion hospitals had smaller losses, the median operating margins of the two groups are similar. Even so, a greater percentage of non-expansion hospitals had positive margins, especially prior to 2015. The relative profitability of hospitals in non-expansion states could have weakened the argument that the expansion was vital for hospital budgets.

Hospital Financial Performance, 2010-2015, Selected Measures

Expansion Hospitals
2010 2011 2012 2013 2014 2015
Avg Operating Income (M) -$3.0 -$9.2 -$10.7 -$9.6 -$9.0 -$10.6
Median Operating Income (M) -$0.3 -$0.6 -$0.7 -$1.4 -$1.1 -$0.5
Median Operating Margin -1.1% -1.1% -1.7% -2.9% -2.3% -0.8%
Hospitals with Positive Margin 44.7% 42.3% 40.7% 35.1% 39.1% 45.7%
Non-Expansion Hospitals
2010 2011 2012 2013 2014 2015
Avg Operating Income (M) $2.6 $4.1 $2.7 -$0.3 $1.2 $2.1
Median Operating Income (M) -$0.1 -$0.2 -$0.3 -$0.7 -$0.7 -$0.4
Median Operating Margin -1.9% -1.8% -1.7% -1.9% -2.0% -0.8%
Hospitals with Positive Margin 47.6% 47.5% 46.8% 41.7% 43.0% 46.2%

Source: Definitive Healthcare

Despite their operating numbers, hospitals in expansion states have experienced many positive effects. Several studies have described the benefits, citing billions saved in uncompensated care costs and additional revenue to facilities that could be forced to close otherwise. According to Definitive Healthcare data, total bad debt in all states that expanded Medicaid declined by 17.4 percent (about $4.3 billion) between 2014 and 2015, compared to 3.2 percent (about $1.2 billion) in non-expansion states. Net patient revenue also increased by about $20 billion in expansion states, though it also rose by the same amount in states without Medicaid expansion. The states themselves have also benefited by spending less on programs that manage the uninsured population.

Median Bad Debt 2010-2015
Source: Definitive Healthcare

It’s important to note that the debate over Medicaid expansion is still ongoing in many states. As hospitals face growing pressure to reduce costs, facilities will look to reduce bad debt, making Medicaid expansion a more attractive operation in states that have currently declined to widen eligibility. In the coming years, researchers will also have enough data to assess if broader Medicaid coverage improves public health, and if it does, legislatures may find it difficult to justify votes against expansion.

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 feature detailed current and historical financial information for hospitals, health systems, and other healthcare providers.

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