Medicaid Expansion Fails to Boost Hospitals


Hospitals are not seeing the big boost from Medicaid expansion they expected. That’s the take-home message of a new report by Moody’s Investors Service.

This should come as a surprise to many hospitals that are pushing for Medicaid expansion in those states that resisted the Obama administration coercion attempts. Since only half the states expanded Medicaid, many hospitals in the remaining states have pushed hard for Medicaid expansion, believing it would improve their bottom line.

That’s certainly what’s happening here in the state of Florida where a coalition of hospitals and businesses called A Healthy Florida Works has been relentlessly pushing the legislature to find a way to expand Medicaid. They may have changed the name, but the impact on the access to healthcare – and maybe even the financial outlook – is the same.

The Moody’s report says in expansion states, hospitals’ unpaid bills fell 13 % on average last year compared with 2013. But, their 2014 operating margins didn’t increase any more than hospitals in the 22 states that have sat out the expansion.

“Clearly, reducing bad debt is positive, but it is no this silver bullet,” said Daniel Steingart, a Moody’s analyst and author of the report. He said the findings call into question “a narrative out there that Medicaid expansion has lowered bad debt and that is driving (financial) improvements at hospitals.”

The architects of ObamaCare envisioned a nationwide expansion of Medicaid and tried to force all the states to comply by threatening them with loss of all federal funding of Medicaid. But the Supreme Court struck down this provision of the law in 2012, giving each state the right to decide on its own if they favored expansion.

Christopher Weaver reports in The Wall Street Journal the results in states that did expand Medicaid. In Illinois, where Medicaid enrollment grew by about 500,000 after the law’s key provisions took effect, one hospital found the changes didn’t add up to financial improvement.

“We did see a significant decrease in unpaid bills,” said Michael Kasser, chief financial officer of Southern Illinois Healthcare, which runs three hospitals southeast of St. Louis. “The bad news is, we saw such a huge increase in Medicaid.” He notes the program pays only about half the hospital’s costs, on average.

He said the hospitals saved about $9 million in unpaid bills, but incurred around $28 million in costs for Medicaid patients, only about half of which was reimbursed by the state-run program. The result: Losses of around $5 million, despite Medicaid expansion. Kasser believes many of those Medicaid patients had put off care – perhaps for years – when they lacked coverage. “We saw big cases, very sick people,” he said.

In Missouri, state officials opted out of expanding the program. Hospitals there say that decision has worsened their challenges at a time when reimbursement is shrinking. “We are not seeing the benefit of significantly decreased uninsured,” said Chris Howard, president of hospital operations at St. Louis – based SSM Health, a nonprofit chain. He said SSM’s operating margin increased in 2014, but “only as a result of extensive cost reductions” that included layoffs.

The outlook may be better in states with historically low eligibility rates – coverage for only the lowest income individuals. States like Mississippi, Missouri, and Texas have covered only those with incomes below 25% of the Federal Poverty Level. In those states an influx of paying customers may mean more of a financial upside.

But the message is clear from Moody’s report: Hospitals should not look to Medicaid expansion as a financial windfall. This means Medicaid expansion not only results in enrolling more people in a failed healthcare system, but it fails to solve the problem of unpaid hospital bills.

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