Health Affairs Study Details Link Between Medicaid Expansion Choices and Hospital Closures

Hospitals closed at higher rates in states that rejected Medicaid expansion in 2014, but for states that embraced expansion, closure rates began to fall, a new study in Health Affairs has found.

The analysis from the University of Colorado confirms reports heard around the country in the years after the Affordable Care Act took (ACA) effect, after the Supreme Court of the United States surprised the law’s framers by leaving decisions on Medicaid expansion to the states.

This put financial strain on many hospitals, because the ACA called for phasing out payments for Disproportionate Share Hospitals (DSH) as those earning up to 138% of the federal poverty line, including childless adults, entered Medicaid. Congress later delayed cuts to DSH payments, but their future remains unresolved.

The authors focused on hospital rates from 2007 to 2015, and eliminated states that expanded Medicaid after 2014 from their analysis. Today, 19 states have not expanded Medicaid.

Researchers found that the states that did not expand Medicaid in 2014 saw a large increase in hospital closures: a rise of 0.429 closures per 100 hospitals between 2008-2012 and 2015-2016. By contrast, in states where Medicaid expanded, the closure rate decreased by 0.33 per 100 hospitals.

“We found that the ACA’s Medicaid expansion was associated with improved hospital financial performance and substantially lower likelihood of closure, especially in rural markets and counties with large numbers of uninsured adults before Medicaid expansion,” the authors wrote.

Lead author Richard C. Lindrooth, PhD, professor in the Department of Health Systems, Management and Policy in the Colorado School of Public Health, told The American Journal of Managed Care^® in an interview that the findings confirmed the hypothesis that the decision to not expand hit hard in “red states,” where expanding coverage to childless adults would have done the most to reduce uninsured rates and bolster hospital finances.

By contrast, Lindrooth pointed to the example of Arkansas, where a decision to pursue the “private option,” an alternative to pure “Obamacare,” led to one of the nation’s steepest drops in the uninsured rate. “The jury is still out on whether that will be successful in the long run,” he noted, as Arkansas is poised to add work requirements for able-bodied Medicaid recipients, and other states want to do this.

The authors noted that expansion “differentially affected hospitals in areas with high preexpansion uninsurance rates, with a greater effect in counties with higher preexpansion rates of uninsurance.” The study, in fact, found the “dose response” was “particularly strong for rural hospitals.”

They noted the difference between urban hospital closures, which many reflect inefficiency or poorer quality relative to competitors, and the community effects of a rural hospital closure.

“Hospitals are often major employers of local residents,” they wrote. “The closure of a hospital results in the loss of well-paid, highly skilled jobs. Absent alternative employers, hospital closures will hasten the migration of well-paid skilled labor to larger cities.”

Actions by states to change eligibility requirements were not the only way Medicaid rolls increased after the ACA. Less attention was paid to the law’s streamlining of barriers for those who had always been eligible for regular Medicaid but had never been able to enroll.

Lindrooth agreed that the awareness of the individual mandate and the removal of barriers had boosted enrollment in states that refused expansion to childless adults, perhaps “crowding out” some private insurance, but this was likely very minimal.

He noted that work requirements are just one of the many changes that could be on the way for Medicaid. Talk of block grants dominated much of 2017, and more changes could come this year.

“There’s so much uncertainty at the federal level for Medicaid and Medicaid expansion,” he said. “We’ll have to see what evolves over the next 12 months.”

Reference

Lindrooth RC, Perraillon MC, Hardy RY, Tung GJ. Understanding the relationship between Medicaid expansions and hospital closures [published online January 8, 2018]. Health Aff. 2017; doi:10.1377/hltthaff.2017.0976.