Association for Public Policy Analysis & Management

Vanderbilt University

Thomas Buchmueller

University of Michigan

Helen Levy

University of Michigan

In debates over the Affordable Care Act, hospitals argued forcefully for Medicaid expansions with the hope that favorable changes in payer mix would reduce uncompensated care and consequently improve financial performance. Although uninsured discharges fell in Medicaid expansion states relative to non-expansion states, little is known about how expansions affected hospital financial performance. We estimate the impact of expansion on Medicaid payments, uncompensated care costs, net income per patient, and operating margins using the 2011-2015 Medicare cost reports. Relative to hospitals in non-expansion states, Medicaid revenues increased and uncompensated care fell for hospitals in expansion states, while net income per patient and operating margins were unchanged. However, among hospitals in states in which childless adults above poverty were already eligible for Medicaid, changes in Medicaid revenues and uncompensated care were small and net income per patient and operating margins either fell or did not improve.  We provide theoretical and empirical evidence that worsened financial position in these states could be explained by high levels of crowd-out of private hospital discharges.