Association for Public Policy Analysis & Management

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 use Medicare cost report data from 2011-2015 to estimate the effect of the Affordable Care Act’s Medicaid expansion on hospital financial outcomes, accounting for differences in the extent and timing of eligibility expansion. We find that the Medicaid expansion led to an increase in Medicaid revenue, a decrease in uncompensated care expenditures and an increase in average operating margins. The effects were larger in states where the Medicaid expansion led to a greater increase in program eligibility. Comparable effects were found for states that expanded in January 2014 and those that implemented the expansion later. Reductions in uncompensated care were widespread. Operating margins improved most for public hospitals and facilities located in rural areas. We conclude that the expansion of Medicaid under the Affordable Care Act has had a beneficial impact on hospital financial outcomes, especially for hospitals that tended to be in the most challenging financial situation prior to reform.