Medicaid expansion helps bad debt but not operating margins

Medicaid expansion under the Affordable Care Act didn't provide non-profit hospitals with the additional revenue they expected, according to a new report from Moody's Investors Service.  

Performance improved across the board, even in the states that opted out of Medicaid expansion, due to a decline in unemployment and a boost in the economy. 

Although hospitals in expansion states expected that fewer unpaid bills and a larger population of paying customers would translate to improved cash flow and operating margins, that hasn't been the case, according to the report. Last year unpaid bills at hospitals in expansion states fell 13 percent compared to 2013, but their operating margins didn't improve any more than those of their counterparts in the 22 non-expansion states.

"Clearly, reducing bad debt is positive, but it is not this silver bullet," Daniel Steingart, the Moody's analyst who wrote the report, told the Wall Street Journal. The findings, he said, fly in the face of "a narrative out there that Medicaid expansion has lowered bad debt and that is driving [financial] improvements at hospitals."

For example, Illinois added about 500,000 people to Medicaid after expanding its program, but the expansion brought its own set of problems, Michael Kasser, chief financial officer of Southern Illinois Healthcare, told the WSJ. Although bad debt reductions saved the system's three hospitals about $9 million, the increase in Medicaid patients brought a $28 million price tag with them, and only about half of that was covered by federal reimbursements, which led to a system loss of $5 million.

However, Steingart added many nonprofits in expansion states may generate more savings than indicated in their financial reports. These savings are often obscured because the organizations use them to add or restore services rather than counting the money as part of their bottom lines. The Department of Health and Human Services reported earlier this year that expansion reduced uncompensated care by $7.4 billion, while a Kaiser Family Foundation analysis indicated revenue is up in expansion states as well.

To learn more:
- download the Moody's report (purchase required)
- check out the WSJ article