U.S. hospitals provided more than $40 billion in uncompensated care annually to patients without insurance coverage or limited ability to pay for hospital care. Several federal funding opportunities exist to help hospitals offset the losses for uncompensated care and providing larger a larger share of care to low-income and historically uninsured populations; however, the supply of funding from programs such as the Medicaid Disproportionate Share Hospital (DSH) is being reduced under the Affordable Care Act (ACA). Beginning 2018, hospitals receiving funding under the Medicaid Disproportionate Share Hospital (DSH) program will begin receiving reduced payments, expected to total more than $22 billion in reduced federal funding over a six-year period. DSH-funded hospitals in many areas help to anchor local health care safety nets among largely Medicaid-eligible populations. The ACA sparked several changes coming to the evolving U.S. healthcare system, and changes in the public financing of hospitals are likely to affect access to hospital care among those normally dependent on safety net care. The reduction in DSH funding was to be offset by expansions in Medicaid eligibility—which was projects to increase hospital revenues; however there are 19 states whom did not expand. As coverage rates increased among the previously uninsured, safety net hospitals were expected to become less reliant on DSH funding due to fewer patients requiring uncompensated care. Without the expected uptakes in coverage, financial constraints experienced by hospitals may translate into larger issues regarding regular access to care for the medically underserved.
The purpose of this research is to characterize the implications of Medicaid expansion on a large component of the health care safety net. Safety net hospitals and other providers in non-expansion states are likely to face stiff challenges in maintaining their ability to provide care to patients with limited ability to pay. Furthermore not expanding Medicaid may exacerbate disparities in access to regular hospital care for highly impoverished communities where uninsured rates tend to be high. Through examining the more immediate effects of non-expansion decisions on hospitals, the work will provide a partial glimpse into what may occur when the Medicaid DSH payment reductions begin in 2018. Using a triple difference estimation strategy, this paper examines the effects of the more recent 2014 Medicaid expansions on 1) volumes of hospital uncompensated care, 2) hospital operating margins, and 3) hospital patient coverage mixes. The analytical data source comes from the 2010-2014 American Hospital Association's Annual Survey and is supplemented by Medicare Cost Reports for the 2009-2014. The findings of this study are expect to add to the growing evidence base examining the extent not expanding Medicaid places safety net (e.g. DSH-funded) hospitals as financial risk and how hospitals are likely to respond when the additional constraint of the payment reductions begin in 2018.
