Association for Public Policy Analysis & Management

Hospitals have relied on a variety of financial sources for covering uncompensated care costs. Medicaid Disproportionate Share Hospital (DSH) payment is the largest single source accounting for roughly 25% of the total funding to hospitals for uncompensated care.

Medicaid expansion was implemented in 2014 under the Affordable Care Act (ACA), and significantly increased insurance rates. In anticipation of increased insurance rates, the ACA also included a Medicaid DSH fund reduction, scheduled to occur from 2018 to 2025. As a result, the planned DSH cut has been a cause for concern for hospitals.

Recent studies have examined how uncompensated care has decreased following Medicaid expansion. However, to our knowledge, no study has examined whether the effect varied by a hospitals’ Medicaid DSH status, which is key to identifying hospitals that may be most affected by the planned DSH cuts. Approximately 46% of all U.S. hospitals receive Medicaid DSH funds, and whether a hospital is receiving Medicaid DSH funds is a key for predicting whether the hospital might need to take steps to prepare for the future cuts.

Objective

To identify whether ACA Medicaid expansion was associated with changes in hospital uncompensated care changes, and whether the changes varied by Medicaid DSH status.

Methods

We created a hospital-level longitudinal panel dataset including: 2011-2015 Medicare Cost Report, 2012 Medicaid DSH Audit Reports, and Area Health Resource File. We defined uncompensated care costs as the sum of charity care and bad debt, and burdens were defined as the share of the uncompensated care costs relative to total operating costs. Medicaid DSH status was defined by a hospital receiving any Medicaid DSH payments in 2012. Using a difference-in-differences approach we estimated the effect of Medicaid expansion on uncompensated care and a triple differences approach to estimating the effect of Medicaid expansion by DSH status. We also controlled for hospital characteristics, county-level market characteristics, and state-specific Medicaid DSH allocation characteristics.

Results

Our difference-in-differences estimate shows that Medicaid expansion was associated with decreased uncompensated care provision for both Medicaid DSH recipients ($2.8M decreases in costs, p<.001; and 1.2 percentage points decreases in burdens, p<.001) and non-DSH recipients ($1.6M decreases in costs, p<.001; and 0.91 percentage points decreases in burdens, p<.001). Also, in Medicaid expansion states, Medicaid DSH hospitals had significantly greater decreases in uncompensated care (costs: $1.1M more decreases in DSH recipients, p<.001; burdens: 0.39 percentage points more decreases in DSH recipients, p<.01). Our triple differences show that relative changes in uncompensated care by expansion status were significantly larger in DSH recipients ($1.1M, p<.01) in costs.

Discussion

Our findings suggest that following ACA Medicaid expansion, DSH hospitals show significantly greater declines in uncompensated care and uncompensated care burden. However, it remains to be seen what the effects of DSH funding cuts may be on hospitals since there have been no details on how the cuts would be implemented. States historically have wide discretion in how they allocate Medicaid DSH funds so future work will have to examine how various funding cut scenarios may affect hospitals’ finances.