More rural hospitals would close if Medicaid expansion scaled back

The expansion of Medicaid eligibility under the Affordable Care Act (ACA) made hospitals less likely to close, especially in rural markets, according to study published in the January edition of Health Affairs.

The study was conducted by Richard Lindrooth, PhD and other researchers at the University of Colorado Anschutz Medical Campus. Looking at data from 2008 to 2016 on hospital closures as well as financial performance data (such as total margin, operating margin and Medicaid/uncompensated care margin), the authors found the ACA’s Medicaid expansion was “associated with improved hospital financial performance and substantially lower likelihoods of closure, especially in rural markets and counties with large numbers of uninsured adults before Medicaid expansion.”

In the states which didn’t expand Medicaid, there was a large increase in the rate of hospital closures, from 0.39 closures per 100 hospitals in the period of 2008 to 2012 to 0.81 closures per 100 hospitals in 2015-16. In contrast, closure rates declined in expansion states, from 0.51 closures per 100 hospitals in 2008-12 to 0.18 closures per 100 hospitals in 2015-16.

“We posit that the primary mechanism that underlies the relationship between hospital closures and Medicaid expansions is the substitution of utilization by patients with Medicaid coverage for utilization by uninsured patients,” Lindrooth and his coauthors wrote.

Overall, the study found hospitals in expansion states were six times less likely to close than hospitals in nonexpansion states. The higher the uninsured rate had been in the hospital’s home county prior to expansion, the greater the change in closure probability.

“This result ... was more pronounced for hospitals in rural areas,” Lindrooth and his coauthors wrote. “The finding that the relationship was stronger at hospitals in areas with higher uninsurance rates strongly supports the link between hospitals’ financial viability and increased rates of health insurance coverage as a consequence of the ACA’s Medicaid expansion.”

On measures of financial performance, there wasn’t a significant difference between hospitals in expansion and nonexpansion states on total margin. The difference in Medicaid and uncompensated care margins, however, was significant, with expansion state hospitals seeing a nearly 0.23 percentage point change compared to nonexpansion state margins.

Based on these results, the study authors warned proposals that would scale back the Medicaid expansion or increase the number of uninsured would lead to increase the risk of hospital closures, particularly in rural areas.

The impact on hospitals may be mitigated somewhat by increasing Medicaid Disproportionate Share Hospital (DSH) payments which had been cut back by the ACA or expanding CMS’s definition of critical access hospitals. While this may sometimes lead to better patient care by closing down poorly performing hospitals, it more often restricts access to care and may worsen outcomes for patients who have to travel longer distances to a hospital.

“A policy that eliminates the Medicaid expansion without a corresponding adjustment in DSH payments or other subsidies will likely result in an increase in hospital closures, especially in rural areas,” Lindrooth and his coauthors concluded. “If patients do not have access to other hospitals, as is the case in many rural markets, access to healthcare will suffer, regardless of whether a person has health insurance.”