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Hospitals Reap Benefits From Medicaid Expansion, Urban Institute Finds

Centers see improved operating margins

According to a new study from the Urban Institute, hospitals in states that expanded Medicaid under the Patient Protection and Affordable Care Act (PPACA) increased Medicaid revenue, reduced uncompensated care, and improved operating margins in 2015.

House Republicans’ American Health Care Act, which died last week before a vote could be taken, would have repealed the states’ option to expand Medicaid under the PPACA.

The new study estimated the effects of the PPACA on hospital finances in 2015 and how they differed between hospitals in states that expanded Medicaid and hospitals in states that did not expand Medicaid. The analysis had two main objectives. First, it expanded on a 2016 study that found that the 2014 PPACA Medicaid expansion lowered hospitals’ uncompensated-care burden attributable to uninsured patients, increased Medicaid revenue, and was associated with improved profit margins through part of 2014. By adding a full year of PPACA exposure data through fiscal year 2015, the new analysis provided a more-complete assessment of Medicaid expansion in states that elected to expand in early 2014. Second, the new analysis explored what types of hospitals benefited from the PPACA Medicaid expansion.

Using data through fiscal year 2015, researchers found that Medicaid expansion under the PPACA increased Medicaid revenue by $5.0 million per hospital, reduced costs of uncompensated care by $3.2 million per hospital, and improved average operating margins by 2.5%. The study also showed that the financial benefits of the Medicaid expansion on hospitals’ profit margins were strongest for small hospitals, for-profit hospitals, hospitals not operated by the government, and hospitals located in rural areas.

The increased Medicaid margins could be especially important for smaller rural centers, according to senior research associate Fredric Blavin.

“Those hospitals are probably at more financial risk in general than larger hospitals,” he said. “They tend to face a lot more challenges than larger hospitals or metro hospitals. They tend to have a larger percentage of uninsured populations. So, really having them see a large change in their payer mix, in terms of a change from uninsured to Medicaid covered patients, really helped those kinds of hospitals that were at risk prior to the [PP]ACA.”

With the health care act remaining in place for now, states that did not expand Medicaid have the chance to reconsider, Blavin said.

Sources: Urban Institute Report; April 3, 2017; and HealthLeaders Media; April 6, 2017.

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