Financial Implications of the Medicaid Expansion for Academic Medical Centers

Author

Madeleine Oritt, University of KentuckyFollow

Year of Publication

2016

College

Martin School of Public Policy and Administration

Date Available

11-1-2017

Executive Summary

On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act (ACA), with the goal of reforming the United States health care system and providing insurance for millions of uninsured citizens and residents. One component of the legislation was the expansion of Medicaid eligibility, which would extend to include all individuals “under age 65 whose family income is at or below 138 percent of the federal poverty guidelines ($14,484 for an individual and $29,726 for a family of four in 2011)” (NCSL, 2015). This provision was challenged in the United States Supreme Court, which ruled that mandatory expansion was unconstitutional and held that Medicaid expansion must be implemented at the discretion of individual states. To date, 32 states, including Washington, D.C., have implemented Medicaid expansion; the majority of expansions became effective January 1, 2014.

One predicted effect of Medicaid expansion was an increase in hospital revenues, due to an increase in insured individuals, a likely increase in the number of individuals seeking care, and a decrease in uncompensated care. The intent of this research is to determine whether this effect has occurred, specifically in academic medical centers and teaching hospitals. There has yet to be substantial research on this topic; however, several factors are presented in the literature that bear on the effect of Medicaid expansion on hospital financial measures. First, the occurrence of a crowd out effect is likely as eligibility is expanded. Some individuals already insured through a private insurer have become eligible for Medicaid, and may change their coverage. Thus, the makeup of new Medicaid enrollees is unlikely to be solely the previously uninsured, which would limit the expansion’s effect on hospital financial measures. Second, Medicaid programs often reimburse care providers at lower rates than do private insurers or Medicare. Depending on the size of the crowd out effect, revenues may be affected by these lower reimbursement rates.

To conduct this analysis, I collected utilization and financial data from 31 academic medical centers and teaching hospitals in 20 states. Sixteen hospitals are located in states that expanded Medicaid, while the remaining 15 hospitals are located in non-expansion states. I chose a fixed effects model, to control for time-invariant differences between the hospitals. I estimated four regressions, using different financial measures as dependent variables in each model: total revenue, total income, operating margin, and net patient revenue. I controlled for variables that could influence the aforementioned financial measures, including number of discharges, case mix index, and payer type.

The analysis found that Medicaid expansion was significantly associated with increases in total hospital revenue and net patient revenue, and with a decrease in operating margin. These results were robust to several checks. This analysis is important to gain a comprehensive understanding of the effects of the Medicaid expansion. Furthermore, Medicaid expansion is a highly dynamic issue. Expansion is actively under discussion in several states, while at least one state is considering reforming the expansion already in effect. Political changes at the federal level may also lead to changes in health care legislation. Thus, it is evident that further study is critical to understanding the short- and long-term effects of Medicaid expansion in the United States.

Recommended Citation

Oritt, Madeleine, "Financial Implications of the Medicaid Expansion for Academic Medical Centers" (2016). MPA/MPP/MPFM Capstone Projects. 258.
https://uknowledge.uky.edu/mpampp_etds/258