Hanging by a Thin Margin: Fiscal Impacts of Medicaid Expansion on Community Health Centers

Background: Community health centers (CHCs) are important safety-net providers. Medicaid expansions are expected to have a profound impact on CHCs as they disproportionately serve uninsured and Medicaid populations. Previous studies on ACA Medicaid expansions found that expansions had increased the share of Medicaid patients and lowered the share of uninsured patients. Research has been lacking on the effect of Medicaid expansions on CHC finances. Our study aims to fill the gap.

Objective: Our main research objective is to understand the impact of Medicaid expansion on revenues, expenditures, assets, liabilities and financial health of CHCs.

Data: This study uses Uniform Data System (UDS) from 2010 to 2016, linked with Internal Revenue Service (IRS) Form 990 nonprofit tax return data and county-level demographic and economic indicators from U.S. Census Bureau. The final sample included 5,982 center-year observations from 1,091 CHCs.

Methods: This study used difference-in-differences analyses, event studies (leads-and-lags models), and placebo law tests to estimate the impact of Medicaid expansion on CHCs. The regression analyses included health center and year fixed effects, as well as adjustments for time-varying clinic characteristics (i.e., percent of patients below 200% of federal poverty line, percent of female patients, percent of Hispanic patients, percent of black patients, and percent of white patients) and county characteristics (i.e., percent of county population older than 65, percent of white, percent of black, percent of Hispanic, percent of unemployed, and median household income).

Findings: Preliminary results indicated a $1.216 million increase in total revenues per center (p<0.01), mostly driven by the increase in Medicaid revenues, offset by a small reduction in state-funded grants and insurance programs. The revenue losses from uncompensated care were reduced by $0.656 million (p<0.01), but the liquidity cushion of CHCs was reduced by 2.85 months (p<0.05).

Conclusion: The evidence on financial health of CHCs was mixed. CHCs benefited from Medicaid expansions due to higher service revenues. However, increased service volume also led to increased care delivery costs and higher capital expenditures. The erosion of CHCs’ liquidity positions may require further interventions by state and federal authorities in support of the safety net.