California hospitals record higher profits under Medicaid expansion, study finds

The ACA's Medicaid expansion led to a substantial increase in revenue and profitability for California hospitals, especially government hospitals, according to a working paper circulated by the National Bureau of Economic Research.

To examine the effects of Medicaid expansion on hospital finances, researchers from Stanford (Calif.) University and Wharton Health Care Management in Philadelphia analyzed data on hospital stays and emergency room visits in California, as well as hospital finance information from 2008 through 2016.

The researchers found Medicaid reimbursed hospitals at about twice the amount the state's previous safety-net programs did. Because government-owned hospitals disproportionately cared for uninsured patients, they were the primary beneficiaries in this change, seeing a nearly 20 percent increase in total revenue per bed. Private hospitals saw an 8 percent increase, according to the paper.

"This increase was driven entirely by higher average reimbursements rather than by additional volume. In fact, government hospitals actually lost some of their patient volume to private hospitals, which moderated the increase in their total revenues," the researchers said.

They added: "Hospitals also reported greater profitability — an average gain of 4 percentage points in their operating margins. Our estimates imply that this increase in operating margin — when converted to dollars — is about 70 percent as large as the estimated increase in Medicaid revenue. Hospitals do not seem to be deploying this income toward greater capital spending or expanding bed capacity, at least in the short run."

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