Medicaid expansion's effect on hospital finances: 5 study takeaways

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Whether states decided to expand Medicaid has important implications for hospitals' finances and their ability to weather the COVID-19 pandemic, according to a study published Jan. 5 in Health Affairs

For the study, researchers from the Urban Institute, a liberal-leaning policy research center in Washington, D.C., used data from the American Hospital Association and CMS to analyze how Medicaid expansion affected hospitals' finances. 

The researchers studied changes in hospital finances from 2011-17, with 2011-13 denoted as the "pre-period" before Medicaid expansion took effect. Hospitals were stratified by characteristics like location, ownership, size and safety-net status. 

Hospitals in 25 states that expanded Medicaid and 19 nonexpansion states were included in the analysis. As of Jan. 5, 2021, 38 states and Washington, D.C., have expanded Medicaid and 12 haven't, according to a tracker from KFF.

Five takeaways from the study: 

1. In 2017, Medicaid expansion was associated with a $6.4 million decrease in mean hospital uncompensated care costs compared the pre-expansion period. That's a 53.3 percent drop relative to the $12 million mean recorded before expansion, the authors said. 

2. Expansion was associated with a 2.6 percentage point drop in mean uncompensated care costs as a percentage of total expenses when compared to pre-expansion numbers.

3. Expansion was associated with an $8.6 million annual increase in mean Medicaid revenue. 

4. Expansion also improved mean operating margins by 1.7 percentage points compared to the pre-expansion period.

5. Compared to hospitals in nonexpansion states, hospitals in states that expanded Medicaid were more likely to be nonprofit, larger, have a teaching affiliation and be in metropolitan areas.

Access the full study here.

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