Study Finds Nonprofit Hospitals Did Not Direct Medicaid Expansion Savings Into Communities

Medicaid expansion was associated with a decrease in nonprofit hospitals’ burden of providing uncompensated care, according to a study published in JAMA Network Open. However, hospitals did not redirect this financial relief toward spending on additional community benefits.

Initially, Medicaid expansion was expected to alleviate some nonprofit hospitals’ financial stress, as it would provide revenue via Medicaid reimbursements from patients previously receiving uncompensated care. But to maintain their tax-exempt status, nonprofit hospitals have to demonstrate they engage with communities by providing benefits and improving overall health.

“By alleviating nonprofit hospitals’ uncompensated care burden, Medicaid expansion could release hospital resources for community benefit activities, thereby increasing hospital expenditures devoted to community benefits and improving public health,” the authors write.

Although federal law requires nonprofit hospitals to disclose their community benefit expenditures, there is no established minimum community benefit requirement. In the past, nonprofit hospitals’ community spending has garnered skepticism, as lawmakers questioned if these institutions give enough to their communities to justify tax exemption.

In a cohort study, researchers used a difference-in-differences analysis to determine if Medicaid expansion was associated with changes in nonprofit hospital spending on community benefits. Data from 990 and Schedule H forms of 1666 US nonprofit hospitals were analyzed to determine community benefit expenditures between 2011 and 2017. The sample represents around two-thirds of all acute-care nonprofit hospitals in the country.

Researchers classified a state as having expanded Medicaid if it expanded its Medicaid-eligible population via executive or legislative action through the Affordable Care Act or a Section 1115 waiver.

By linking expenditure data to information from the annual American Hospital Association (AHA) survey, the investigators measured the percentage of hospital operating expenditures attributable to charity care and subsidized care, bad debt, unreimbursed Medicaid spending, noncare direct community spending, and total community benefit spending. Bad debt included unreimbursed spending for care of patients who did not apply for charity care.

Of the 1478 hospitals included in the sample in 2011, 44.2% had fewer than 100 beds and roughly 70% were located in urban areas. In 2011, the mean (SD) percentage of discharges attributable to Medicaid-insured patients was 17.3% (9.1%) while that total increased slightly to 17.6% (9.4%) throughout the full study period.

Data also revealed:

• A mean (SD) total operating expenditure of $224 ($434.2) million when averaged over the study period
• Mean (SD) total community benefit expenditures were 8.1% (5.1%) of total operating expenditures, with 3.6% (3.9%) attributable to charity care and subsidized care expenditures and 1.1% (2.8%) attributable to noncare community-directed expenditures
• Medicaid expansion was associated with a decrease in spending on charity care and subsidized care (−0.68 [95% CI, −0.99 to −0.37] percentage points from a baseline mean [SD] of 3.6% [4.0%] of total hospital expenditures; P&thinsp;<&thinsp;.001)
• Expansion was associated with bad debt (−0.17 [95% CI, −0.32 to −0.01] percentage points)
• An increase in unreimbursed spending attributable to caring for Medicaid patients was observed over the study period (0.85 [95% CI, 0.60-1.10] percentage points; P&thinsp;=&thinsp;.04), which canceled out uncompensated care savings from the expansion
• Noncare direct community expenditures decreased overall (−0.24 [95% CI, −0.48 to 0] percentage points; P&thinsp;=&thinsp;.049)

Using hospital characteristics collected from the AHA, the researchers found direct community expenditures remained more stable in small, nonurban hospitals compared with large and urban hospitals. However, large, urban hospitals experienced the greatest net gains from expansion.

“That the financial gains from the expansion accrued by large and urban hospitals were not reflected in increases in community-directed spending should prompt closer scrutiny by lawmakers,” the authors write.

In addition, a previous study found that nonprofit hospitals with the highest net income dedicated the smallest proportion of their earnings to providing free care to uninsured patients and low-income individuals.

The researchers hypothesize one reason for the decline in community-directed spending in the current study “may be that sophisticated hospitals capitalized on the influx of Medicaid patients—and the gap between Medicaid reimbursements and hospital charges&mdash;to enhance the appearance of total community benefit spending.”

Increasing hospital costs may have also contributed to the decline. Btween 2007 and 2014, inpatient and outpatient hospital costs increased by 42% and 25%, respectively. However, because some hospitals maintained or increased community spending as they experienced net losses in unreimbursed care, this factor may not be the sole contributor to the findings, the authors note.

“Clearer, enforceable requirements for community-directed benefit spending alongside stronger financial incentives for population health through, [for example], alternative payment models, might increase nonprofit hospitals’ direct investments in their communities,” the researchers conclude.

Reference

Kanter GP, Nabet B, Matone M, Rubin DM. Association of state Medicaid expansion with hospital community benefit spending. JAMA Netw Open. Published online May 29, 2020. doi:10.1001/jamanetworkopen.2020.5529