Changes to Medicaid could accelerate hospital closures

The future of Medicaid was among the most hotly contested healthcare topics in 2017, and it looks like that's unlikely to change in 2018 as states seek to change their programs and Congress is poised to take another shot at passing funding reforms.

But authors of a new study published Monday in Health Affairs say any changes that subsequently eliminate coverage gains made through Obamacare's Medicaid expansion would likely lead to more hospitals closing their doors due to financial strain stemming from shrinking Medicaid revenue.

Researchers examined CMS data on hospital closures and their financial performance between 2008 and 2016. They found hospital closure rates were the same from 2010 to 2012 among states that eventually expanded Medicaid versus states that opted not to expand.

Closure rates between expansion and non-expansion states began to diverge in 2013, a year after the U.S. Supreme Court ruled states had the option to expand Medicaid to cover all adults earning up to 138% of the federal poverty level. The hospital closure rate for non-expansion states doubled from 0.45 per 100 hospitals in 2012 to 0.90 in 2013, the researchers found.

That gap has remained even though non-expansion states have seen a decline in closure rates since 2014. States that did not expand Medicaid had a total increase of 0.43 closures per 100 hospitals between 2008 and 2016 while states that opted to expand saw their closure rate decrease by 0.33 per 100 hospitals during the same period. Overall, hospitals in expansion states were found to be 84% less likely to close than those in non-expansion states.

"The Medicaid expansion has had a significant financial impact on hospitals," said study author Gregory Tung, assistant professor of health systems, management and policy at the University of Colorado's School of Public Health. "Our specific focus is looking at the most extreme outcome—does it have an impact to the extent that it actually affects closures, and the bottom of our research is that it does."

Medicaid expansion had a more pronounced effect on providers with many uninsured patients. Urban hospitals with an uninsured patient rate of at least 30% prior to ACA implementation were more than 92% less likely to close after Medicaid expansion. Rural hospitals serving the same proportion of uninsured were 91% less likely to close after expansion.

The findings could have huge implications if Republican lawmakers once again attempt to repeal and replace the ACA. Previous proposals for such efforts have called for placing per capita caps on Medicaid or converting the program into block grants, which the Congressional Budget Office has estimated would cut spending by a third over the next 10 years, and affect as many as 11 million beneficiaries.

Rural hospitals in particular could be vulnerable to a potential rollback in Medicaid coverage, where the program covers as many as 52 million non-elderly adults. Since 2010, more than 80 rural hospitals have closed, according to the National Rural Health Association, while more than 670 are at financial risk of closing.