Reform Update: Does Medicaid expansion mean less bad debt for hospitals? Early numbers say yes

The Medicaid expansion underway across half the country holds the promise of fewer unpaid medical bills, bringing financial relief to hospitals as well as poor households. Now, early reports from providers suggest that might be the case.

In states that chose to expand Medicaid as of January, more patients have entered the hospital with Medicaid and fewer lack health insurance, according to several health systems that have disclosed financial figures through the end of March. The decline in uninsured patients has meant hospitals are writing off lower sums as charity care and bad debt.

"We have seen a significant drop off in the patients that are coming to our facilities that don't have insurance," said Andy McCoy, vice president of revenue management for Minneapolis-based Fairview Health Services.

The data suggest that rise in Medicaid patients doesn't reflect new patients but rather ones who previously sought care at Fairview without insurance coverage. Demand for hospital and emergency room services, that is, has not increased with an influx of Medicaid patients at the system's six Minnesota hospitals. Fairview also saw charges for Medicaid patients increase during the first three months of the year on par with a drop in charges for the uninsured, he said.

Unpaid bills likewise declined at the Charleston (W. Va.) Area Medical Center Health System as West Virginia expanded Medicaid. The system also collected 24% more revenue from Medicaid during the first three months of the year compared with the same quarter a year ago. Revenue from patients who pay their own medical bills, meanwhile, dropped 72% to $9.3 million in the first quarter from $32.8 million the prior quarter.

Broader insurance coverage is great for access to care. But whether more access is good for hospital budgets depends on whether Medicaid offsets cuts to previous state hospital subsidies for low-income patients. Moreover, the effect on increased access on overall healthcare spending depends on the degree to which hospitals can successfully manage the primary care and chronic diseases to keep newly insured Medicaid patients from costly emergency room or hospital stays, say analysts.

"Anecdotally, it's all over the map," said Dan Steingart, an assistant vice president and healthcare analyst for Moody's Investor Service. For example, incoming cash dwindled at the University of New Mexico Hospitals, Albuquerque, as the state slashed hospital subsidies in response to Medicaid expansion, but enrollment delays stalled new Medicaid signups, he said.

Analysts and executives caution that halfway into the first year after the Patient Protection and Affordable Care Act's insurance expansion, more time and data are needed to understand who benefited from the law. "We're still talking about small numbers and early days," said Megan Neuburger, a senior director for Fitch Ratings and an analyst of for-profit hospital companies. Still, some indicators suggest the law increased access and reduced unpaid bills, she said, citing performance during the first quarter for hospital giant HCA.

The Nashville-based hospital operator reported in April that admissions for Medicaid patients increased 22% as admissions for the uninsured dropped 29% in states that expanded enrollment. Meanwhile, in states that did not expand Medicaid, HCA hospitals saw Medicaid admissions drop and demand from the uninsured rise.

The Kaiser Family Foundation said in January 1 million Texas residents remained uninsured because of the state's decision to not expand Medicaid.

For Baylor Scott & White Health Care System, the state's largest not-for-profit health system, that choice appears to be leaving more patients responsible to pay out of pocket, CEO Joel Allison said.

During the first three months of the year, 9.9% of the system's revenue was paid directly from patients compared with 9.3% from Medicaid. (Health plans sold through the Texas insurance exchanges—the Affordable Care Act's other avenue to expand insurance—accounted for 0.3% of the system's revenue between January and March.)

Baylor Scott & White will also see roughly $130 million less from Medicare next under cuts enacted through the Affordable Care Act—cuts the hospital industry agree to in part because the Medicaid expansion was expected to offset them. The system will lobby state lawmakers to reconsider Medicaid expansion when the session resumes in January, Allison said. "We're hopeful that we can work effectively with our legislature to come up with a Texas solution," he said.

The CMS has work to do to improve Medicare's accountable care organizations and attract more participants, the Medicare Payment Advisory Commission said in a new report.

Changes to when and how Medicare identifies patients included in ACOs would make it easier for the networks to manage quality and costs and harder for them to nudge out costly patients, the report said.

Adjustments to how the CMS benchmarks and awards financial incentives could better reward and encourage participation by historically efficient ACOs, MedPAC said. Adjustments to the incentive structure would also enable broader use of more aggressive incentives that put ACOs at risk for losses as well as in line for potential bonuses.

The congressional advisory panel also said ACOs would benefit from tweaks that encourage Medicare enrollees to use ACO hospitals and doctors, such as lower cost-sharing, and the ability to refer patients to recommended providers.

At a Washington conference Wednesday on accountable care, the Federal Trade Commission's Bureau of Economics reiterated the commission's position that antitrust enforcement is not at odds with goals or mechanisms of the Patient Protection and Affordable Care Act. The law's central mission is to significantly expand insurance coverage using existing health insurance markets, the FTC's Martin Gaynor said. "That system is built on private markets. That means that our healthcare system and the Affordable Care Act will only work as well as those underlying markets work." Gaynor's remarks concluded a debate among antitrust experts on the ability of ACOs to reduce competition and raise prices or, conversely, improve efficiency and quality.

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