Medicaid Expansion cuts Hospital Closures

Hospital closures can adversely impact patient outcomes, particularly for time-sensitive conditions, and hospitals with poor financial performance are more likely to close. Prior evidence has demonstrated the positive effect of Medicaid expansion on hospital financial outcomes because Medicaid revenue from newly insured patients replaces previously uncompensated care provided to uninsured patients. 

Lindrooth et al. test the association between Medicaid expansion and hospital financial performance and closure by comparing hospitals in expansion vs. non-expansion states, using a difference-in-differences approach to account for the rate of hospital closures prior to Medicaid expansion. Their findings demonstrate an increase in the unadjusted rate of hospital closures (+0.429 per 100 hospital) in non-expansion states from 2008-12 to 2015-16, and a decrease over the same period in expansion states (-0.33 per 100 hospitals). 

Hospitals in expansion states were 84% less likely to close than hospitals in non-expansion states. For-profit hospital status and higher county-level unemployment rates were associated with increased likelihood of closure; while increased bed count, more profitable services, and critical access status (likely due to government subsidies) had a protective effect. With respect to financial performance, the study demonstrated no difference in total margins or operating margin of hospitals in expansion vs. non-expansion states, but did show an increase in Medicaid and uncompensated care margins. The increase in Medicaid and uncompensated care margins and decreased probability of hospital closure were greatest for hospitals in areas with the highest pre-expansion uninsurance rates, exhibiting a “dose-response” relationship. This dose-response relationship with increased pre-expansion uninsurance rates and decreased likelihood of closure was even stronger among rural hospitals, which underscores the relationship between financial stability and Medicaid expansion. 

These findings warrant increased scrutiny of policies that reduce eligibility for Medicaid enrollment because the detrimental effects on access to care and loss of highly skilled jobs associated with local hospital closures can have particularly negative impacts on rural communities. Unless accompanied by increase in additional subsidies such as disproportionate share (DSH) payments, policies that limit Medicaid enrollment will likely increase hospital closures and exacerbate disparities in access to health care and patient-centered outcomes.

Abstract

Decisions by states about whether to expand Medicaid under the Affordable Care Act (ACA) have implications for hospitals’ financial health. We hypothesized that Medicaid expansion of eligibility for childless adults prevents hospital closures because increased Medicaid coverage for previously uninsured people reduces uncompensated care expenditures and strengthens hospitals’ financial position. We tested this hypothesis using data for the period 2008-16 on hospital closures and financial performance. We found that the ACA’s Medicaid expansion was associated with improved hospital financial performance and substantially lower likelihoods of closure, especially in rural markets and counties with large numbers of uninsured adults before Medicaid expansion. Future congressional efforts to reform Medicaid policy should consider the strong relationship between Medicaid coverage levels and the financial viability of hospitals. Our results imply that reverting to pre-ACA eligibility levels would lead to particularly large increases in rural hospital closures. Such closures could lead to reduced access to care and a loss of highly skilled jobs, which could have detrimental impacts on local economies.

PMID: 29309219

Lindrooth, RC, et al. Health Affairs. 2018; 37 (1): 111-120.