More Medicaid money, fewer problems

The expansion of Medicaid under the Affordable Care Act reduced hospital closures, a study found.


It's clear how the expansion of Medicaid coverage under the Affordable Care Act affected patients—more of them became insured.

But how did it affect hospitals? Because only some states chose to expand eligibility for Medicaid, a team of researchers was able to look at the effects of coverage expansion on financial performance and closures of hospitals.

Comparing data from 2008-2012 and 2015-2016, they found that hospital closures doubled in nonexpansion states (from 0.39 to 0.81 per 100 hospitals) but decreased in expansion states. The association was particularly strong in rural areas. Hospital margins also increased more in expansion states than in nonexpansion states, although the difference was not statistically significant.

Lead study author Richard C. Lindrooth, PhD, recently talked to ACP Hospitalist about the findings, which were published in the January 2018 Health Affairs. He is a professor in the department of health systems, management, and policy at the University of Colorado in Aurora.

Q: What led you to study this question?

A: The sustainability of the hospital industry has long been an interest of mine. Looking at the Medicaid expansion, there were many stories in the press about rural hospital closures in particular, and these were really anecdotal, focused on a specific hospital. So we decided to take a systematic approach and look at hospital closures nationwide.

Q: Were you surprised by any of the results?

A: One element that was slightly surprising is that the impact of the expansion was much stronger in rural areas. While there was an impact in the urban areas, it was not as large as I expected to begin with. It still existed, but much of the action was in the rural areas.

Q: What's the significance of that finding?

A: One thing this does reflect is the payer mix that rural hospitals are facing. They are facing a relatively large proportion of uncompensated care or uninsured patients. These were the precisely the patients that benefited from the expansion. So the substitution between no insurance to Medicaid was much stronger in the rural markets, whereas in urban markets, there still was that substitution, but it was not as dramatic, not as large, as we would have expected. That could be due to the nature of uninsurance in urban areas, where it may include people who wouldn't be eligible for Medicaid in general, even if they do meet the income eligibility requirements.

Q: What other results were particularly notable?

A: One element of our paper which we found very convincing [relates to] the change in closure probability for rural hospitals. If, prior to expansion, the local residents' uninsurance rate was, say, 10%, there was not a significant impact on the closure probability, but once we get above 10%, around 15% to 30%, there was a very large impact. So even though our results are based on observational data, we see this relationship in the way that you would expect: Hospitals in markets where there's a large proportion of people without insurance would benefit substantially more by the expansion than hospitals in markets where there were relatively few uninsured people.

Q: Are there any particular take-home points for hospitalists?

A: It's not as though hospitals are making a lot of money by treating Medicaid patients, [but] at least...it's some revenue, and something is better than nothing. The hospitals may be able to cover at least a large portion, maybe all, of their variable costs of treatment with Medicaid reimbursement. Essentially any bit of revenue helps. In terms of actual patient care...hospitalists, for example, wouldn't necessarily be focused on the payer of the patient when making decisions in the hospital. They'll treat them appropriately regardless, but there may be some flexibility in the resources that are available to improve patient care when the overall revenue coming into the hospital is stronger.

Q: What impact should these findings have on proposals in some states to roll back Medicaid expansion?

A: One of the things that we attempted to point out is that there are real consequences [to such rollbacks] when there are a large number of uninsured, and those consequences can reduce access to patients, regardless of their insurance. Consideration of access is important when considering these policies. There's also the Disproportionate Share Hospital policy, which has begun to be phased out. And if that is phased out, in combination with the rollback of the expansion, I would have serious concerns about the viability of many hospitals, but especially in rural areas. I would expect it to also hit urban areas, because there are many urban hospitals that do rely on Disproportionate Share payments.

Q: How does the current state of uncertainty in health care policy affect hospital closure decisions?

A: That uncertainty is important because these decisions are made by administrators who are looking forward. They're trying to see how [their hospitals] will perform next year and the following year. And if there is uncertainty about coverage, that adds risk and it may make them more likely to close....You can imagine the impact on hospital investment as well. If your hospital is in an expansion state and you're reliant on Medicaid patients to some extent, and there was uncertainty about Medicaid expansion going away, you'd be less likely to make those investments, whether it be in new technology, improving facilities, [or] improving processes.