New data have begun to show the benefits of Medicaid expansion, particularly for providers that fill a safety net role, according to separate studies by the Georgetown University Center for Children and Families (CCF) and the Kaiser Family Foundation (KFF).

On average, essential hospitals operate at a 0 percent margin — well below the 8.3 percent aggregate margin for hospitals nationally. The expansion of Medicaid in 32 states (including the District of Columbia) has played an important role in allowing essential hospitals to serve vulnerable patients and provide better-integrated care in their communities.

The CCF and KFF studies indicate that expansion has reduced uncompensated care (UC) costs by reducing the number of patients without insurance. That reduction has led to a ripple effect of positive changes for providers in expansion states, the researchers said.

CCF Study

CCF researchers conducted interviews with leaders from 11 hospital systems and federally qualified health centers in seven states — four that had expanded Medicaid and three that had not, as of 2014. The results of these interviews pointed to several trends within expansion states:

  • shifting patient mix, including fewer uninsured patients
  • increased communication and care integration
  • improved financial margins and increased capacity

In general, the decrease in uninsured patients in expansion states has given providers that fill a safety net role more flexibility to improve their systems. In some cases, such providers have avoided staff cuts or even increased their workforce. Meanwhile, their non-expansion counterparts are more likely to maintain the status quo in terms of their finances, resulting in constraints on expanding facilities or hiring new staff.

Some non-expansion states also have noted a potential “brain drain.” When given the choice, individuals might prefer to work for a provider in an expansion state due to better perceived job stability.

KFF Study

KFF’s analysis shows similar expansion-related reductions in UC costs, but researchers caution that other payment policy changes might slow some of these reductions in coming years.

According to KFF, overall UC costs fell nationwide by 17 percent — or $6 billion — between 2013 and 2014, with $5.8 billion of that reduction occurring in expansion states. While this steep reduction in UC costs shows that Medicaid expansion has been successful in decreasing the size of the uninsured population seeking care, other factors might offset these gains and harm hospitals’ bottom lines. For example, increases in Medicaid payments driven by expansion might fall short of rising costs, though further analysis is required to confirm this. In addition, scheduled reductions in disproportionate share hospital (DSH) payments and limits to other supplemental payments likely will put a strain on the financial viability of hospitals that fill a safety net role, particularly in non-expansion states.

Despite these promising results, expansion is by no means a panacea for the challenges that providers face. Essential hospitals in expansion states continue to struggle to provide specialty care to patients.  Medicaid DSH cuts and adjustments in Medicaid reimbursement rates threaten the ability of essential hospitals to fulfill their missions while operating at a margin that allows for improved care coordination and quality.

America’s Essential Hospitals’ newly released 2014 Essential Data: Our Hospitals, Our Patients, shows that essential hospitals still struggle to break even. But the CCF and KFF studies suggest that Medicaid expansion might serve as a key tool to improve financial outcomes, ultimately improving patient care.