The Effect of Medicaid Expansion on Hospital Closure and Capacity

The 2010 Patient Protection and Affordable Care Act (ACA) increased expectations of insurance prevalence, particularly among acute care hospitals with emergency departments. Concerns have arisen regarding hospital closures in non-expansion states, but the empirical effect of expansion or non-expansion on hospital expectations and closures is unknown. In this paper, we exploit state-level variation in Medicaid expansion to estimate the effect of hospital expectations on the likelihood of closure. Trends in expansion versus non-expansion states are modeled against the secular trend in hospital closures using a national census of hospital financial reports from 2006-2013. The data are obtained via the Healthcare Cost Report Information System and systematically validated with local news reports and phone surveys. We estimate the effect of provider expectations on patient access, defined as both the number of facilities, hospital capacity, and the average distance to the nearest hospital. Taken as a whole, the results suggest that improvement in hospital finances from the ACA have been concentrated among hospitals that were not at risk for closure prior to the ACA. Thus improvements in hospital finances may not translate into increases in financial or geographic access for patients, as was previously hoped, due to complex interactions of regulatory statue, removal of DSH subsidies, moral hazard, and crowd-out.