Hospitals in states that expanded their Medicaid programs last year saw a significant reduction in bad debt, but even providers in non-expansion states still improved their operating margins.
The average reduction in bad debt last year was 13% in Medicaid expansion states, according to an analysis of not-for-profit and public hospitals by Moody's Investors Service. In non-expansion states, bad debt rose in the first nine months of the year, and only started to come down in the fourth quarter.
Yet that difference alone did not have an effect on hospitals' bottom lines. Hospitals across the country improved their operating performance as the economy strengthened and there was higher demand for healthcare services, said Moody's analyst Daniel Steingart.
“Everyone is doing better; a rising tide lifts all ships,” he said.
In the fourth quarter of the year, for instance, hospitals in non-expansion states actually improved their operating margins by 1.3 percentage points, while those in expansion states saw an improvement of only about 0.9 percentage points.
Bad debt represented only 4.8% of median 2013 hospital revenue in Medicaid expansion states—which might explain why a reduction there didn't have a strong impact on operating margins, Moody's report said.
Hospitals in non-expansion states, however, had bad debt that represented 7.5% of revenue in 2013, suggesting that a policy change in those states would have the most dramatic effect.
It's also possible that hospitals in expansion states are reinvesting the additional funds in other initiatives, such as population health management and setting up accountable care organizations, Steingart said. “As hospitals in the expansion states get some relief, they put the money to use for other programmatic purposes,” he said.