California hospital revenue, profitability rose under ACA, Medicaid expansion
- California hospitals revenue and profitability increased under the Affordable Care Act, thanks largely to Medicaid expansion, with government hospitals being the biggest winners, according to a new National Bureau of Economic Research working paper.
- The average hospital saw a gain of about $55,000 in annual Medicaid revenue per bed, up 27% over pre-ACA levels — or an additional $4.1 billion in Medicaid payments to hospitals in the state annually from 2014 through 2016.
- Revenue for the average private hospital grew by about $90,000 per bed, a 9% increase over the pre-ACA mean. Government hospitals, which served the bulk of indigent patients before the ACA and Medicaid expansion, generated roughly $200,000 more per bed, about 25% of the mean pre-ACA level.
The study focuses on California, which was one of 25 states (including D.C.) that opted for Medicaid expansion in January 2014. It analyzes hospital stays, emergency room visits and hospital finances from 2008 through 2016.
While government hospitals gained more in revenue as a result of expansion, they lost patients to private hospitals. The average government hospital lost 1.1 stays per bed compared with its private counterparts, or about 3% of mean volume, according to authors. The reason for this shift is not clear, but could be due patients' desire for better care, they note. It may also be driven by managed care plans, which are more likely to include private hospitals in their networks and exclude government facilities.
Still, given the higher rate of Medicaid reimbursement, hospitals with greater shares of uninsured saw the biggest spike in profitability.
"Back of the envelope calculations imply that this translates to a gain of ~$9 million for the average acute care hospital," according to the paper. "If we aggregate this across the 320 hospitals in our sample, it implies a collective increase of $2.8 billion hospital operating profit due to the ACA, or about 70% of the estimated increase in Medicaid revenue."
Expansion also had the effect of replacing nearly all county-run safety-net healthcare programs in California, a boon to local taxpayers. Meanwhile, hospitals benefited from more Medicaid payments, which were twice the rate paid by the safety net programs, the researchers say.
In terms of health insurance, the authors found no notable increase in private coverage among hospitalized patients, suggesting most people who obtained coverage through the state's ACA exchange, Covered California, would have purchased health insurance elsewhere had the ACA option not been available.
But the authors did find a meaningful decline in in-hospital mortality after the ACA took effect — a likely result of the preference for private, higher-quality hospitals, they say.
The report comes as more states are considering expansion, though many with restrictions like work requirements. Currently, 36 states and the District of Columbia have expanded Medicaid, extending coverage to about 15 million. Last year, Idaho, Nebraska, Utah and Virginia all voted to expand their programs. That still leaves 14 non-expansion states, but recently two of those — Kansas and Oklahoma — have appeared to be leaning toward expansion.
Overall, Medicaid expansion has been shown to improve coverage rates, access to care, affordability of services and health outcomes. It has also benefited states economies.
But expansion is no guarantee that needy individuals will get healthcare when they need it. A recent Medicaid and Children's Health Insurance Program Payment and Access Commission report found expansion under the ACA has little (if any) impact on whether doctors accept the Medicaid payments. In fact, specialists in non-expansion states were more likely to accept new Medicaid patients than those in expansion states (90% versus 74%).
- National Bureau of Economic Research The Impact of the Affordable Care Act: Evidence from California’s Hospital Sector