How Has the ACA Changed Finances for Different Types of Hospitals? Updated Insights from 2015 Cost Report Data

How Has the ACA Changed Finances for Different Types of Hospitals? Updated Insights from 2015 Cost Report DataU.S. Health Reform—Monitoring and ImpactBy Fredric BlavinApril 2017Support for this research was provided by the Robert Wood Johnson Foundation. The views expressed here do not necessarily reflect the views of the Foundation. U.S. Health Reform—Monitoring and Impact2INTRODUCTIONThe American Health Care Act, which was considered by Congress but ultimately did not reach the House floor for a vote, would have repealed the state option to expand Medicaid under the ACA.1–4 However, with the ACA remaining intact for now, some states still face the decision to expand Medicaid and receive the enhanced match rate for the ACA expansion population. As of March 27, 2017, 32 states including Washington, DC have elected to expand, whereas 19 states have not. States’ decisions to expand Medicaid could have important implications for hospitals. Expansion could decrease unreimbursed expenses attributable to uninsured patients, while increasing revenue from newly covered patients. This could decrease hospitals’ uncompensated care burden, which can be a significant financial strain.5,6 However, whether Medicaid expansion has been associated with improved hospital finances is uncertain. Substituting Medicaid for uninsured patients may not necessarily improve profits, particularly for hospitals that receive generous support from state or local government for providing uncompensated care. This study estimates the effects of the ACA on hospital finances in 2015 and how they differ between hospitals in states that expanded Medicaid and hospitals in states that did not expand Medicaid. This analysis has two main objectives. First, it expands upon a 2016 study that found that the 2014 ACA Medicaid expansion lowered hospitals’ uncompensated care burden attributable to uninsured patients, increased Medicaid revenue, and was associated with improved profit margins through part of 2014.7 By adding a full year of ACA exposure data through fiscal year (FY) 2015, this analysis provides a firmer assessment of the Medicaid expansion for states that elected to expand in early 2014. Second, this analysis explores what types of hospitals benefited from the ACA Medicaid expansion. Overall, this study finds that the financial benefits of the Medicaid expansion on hospitals’ profit margins were strongest for small hospitals, for-profit and non-federal-government-operated hospitals, and hospitals located in nonmetropolitan areas. A PPROACH This study examines changes from FY 2011 through FY 2015 in uncompensated care costs, uncompensated care costs as a percentage of total hospital expenses, Medicaid revenue, Medicaid revenue as a percentage of total hospital revenue, operating margins, and excess margins. Operating margin is a key ratio that measures the profitability of hospitals based on the performance of primary activities related to patient care.8 Excess margin is a broader profitability indicator that includes all other sources of income, not just those from patient care. See Box for detailed definitions of hospital financial terms. This analysis uses multivariate difference-in-differences models to compare changes in financial outcomes for hospitals in 19 states that expanded Medicaid eligibility in early 2014 (treatment group) relative to hospitals in states that did not expand Medicaid (comparison group). Because this study focuses on the effects of the 2014 Medicaid expansion, the sample excludes hospitals in Massachusetts and six states (California, Connecticut, District of Columbia, Minnesota, New Jersey, and Washington) that extended Medicaid eligibility to low-income adults before January 2014 through a separate provision of the ACA. The With support from the Robert Wood Johnson Foundation (RWJF), the Urban Institute is undertaking a comprehensive monitoring and tracking project to examine the implementation and effects of health reform. The project began in May 2011 and will take place over several years. The Urban Institute will document changes to the implementation of national health reform to help states, researchers and policymakers learn from the process as it unfolds. Reports that have been prepared as part of this ongoing project can be found at www.rwjf.org and www.healthpolicycenter.org. U.S. Health Reform—Monitoring and Impact3sample also excludes hospitals in three states that expanded Medicaid in the second half of 2014 (New Hampshire) or the beginning of 2015 (Pennsylvania and Indiana) because fiscal-year financial data for most hospitals in these states capture only a fraction of calendar year 2015. Details on the data and methodological approach, along with sensitivity analyses, are in the Appendix.Though other components of the ACA, such as subsidies for marketplace coverage, could influence hospital finances, this study focuses primarily on the Medicaid expansion. Even though the marketplaces account