Legislators in some non-expansion states are currently under fire from state hospital associations, and in some cases state governors, to finally expand their Medicaid programs. Will the holdouts cave under the pressure?
As of March 14, there were 19 non-expansion states, according to a Kaiser Family Foundation report. Hospitals in those states are not faring as well as their counterparts in states that have expanded their Medicaid programs.
Medicaid expansion leads to more demand, less charity care
James Giordano, partner and director of population health management and value-based care services at global management consulting firm Kurt Salmon says that following Medicaid expansion, hospitals in expansion states saw an increase in demand and a decrease in the number of uninsured patients. “They received more revenue from Medicaid, had a significant decrease in charity care costs and saw a general increase in operating margin,” he said.
In contrast, Giordano says that “hospitals in non-expansion states saw a much smaller increase in Medicaid volume and margins that were relatively flat, with very little change to self-pay and charity care.”
Rural hospitals at risk for closure
Rural hospitals are taking the biggest hit. North Carolina Health News reports in a study conducted by the University of North Carolina-Chapel Hill, researchers found that in expansion states, the percentage of uncompensated care revenue for rural hospitals is about 8%, whereas in non-expansion states, it’s between 10% and 11%.
“There’s no business model that I’m aware of that is sustainable in the long run with that amount of uncompensated work being done,” Jeff Spade, executive vice president of the North Carolina Hospital Association’s NC Center for Rural Health Innovation and Performance, told North Carolina Health News.
The State Health Reform Assistance Network says that as of September 2015, the percentage of rural hospitals at risk for closure in non-expansion states has nearly doubled in comparison to those in expansion states (based on measures of financial strength, quality and outcomes, inpatient/outpatient share and population risk). For FY 2013, the at-risk hospitals reported operating profit margins that were 131% lower and cash flow margins that were 76% lower than the national median.
Hospitals are also facing cutbacks on federal funding
Qualifying hospitals that serve a large number of uninsured and underinsured patients receive Disproportionate Share Hospital (DSH) payments from both Medicare and Medicaid.
In anticipation of more people having healthcare coverage as states expanded their Medicaid programs, DSH payments have been cut under both programs, leaving non-expansion states with an additional source of lost revenue.
Will holdouts finally give in?
In his proposed budget for 2017, President Obama has included 100% federal funding for three years to states that expand Medicaid this year or next year, as an incentive to get more states to expand their programs.
According to USA Today, HHS Secretary Sylvia Burwell said it’s only a matter of time before non-expansion states will give in. It's not a question of if states will expand Medicaid,” she said. It’s "a question of when."
Burwell said there are two main reasons why non-expansion states will eventually get on board: 1) The higher rate of hospital closures in non-expansion states; and 2) the number of working people who still don’t have coverage. "Helping people who are working and playing by the rules is something that is an important concept most people agree on," she said.
She may be right. In a shocking move, Oklahoma is considering expanding Medicaid after years of resisting Obamacare due to a massive $1.3 billion budget deficit. GOP leaders are even considering a tax hike to help cover the state's costs to avoid potential hospital and nursing home closings.