Health Reform and Safety Net Hospitals Implications of Impending Reductions in Medicaid Disproportionate Share Hospital (DSH) Payments June 26, 2017 Teresa A. Coughlin Christal Ramos Timothy Waidmann
Safety Net Hospitals and Health Reform • Safety Net Hospitals (SNHs) play important role in US health care system • Serve vulnerable populations • Provide high-cost community services • Train medical professionals • Affordable Care Act (ACA) changed financial landscape for hospitals • Medicaid expansion reduced uncompensated care (UC) costs and uninsured hospital visits (e.g., Nikpay et al; 2016; Dranove et al, 2016; Blavin 2016; MACPAC 2017) • Little research on how ACA affected SNHs • Medicaid disproportionate share hospital (DSH) payments • Significant revenue source for SNHs • ACA calls for 17% reduction in DSH payments Fall 2017 • AHCA includes changes to Medicaid DSH payments beginning 2018
Study Questions 1. How did SNHs’ finances in states that took up the ACA Medicaid expansion compare to those in states that did not expand Medicaid? • Financial measures: operating margins, UC costs, share of operating expenses that UC costs represent 2. How do SNH executives view the role of Medicaid DSH payments in their institutions and communities? What do they think are potential consequences of pending federal Medicaid DSH cuts?
Study Data • American Hospital Association (AHA) Survey, 2013-2014 • Hospital characteristics: size, ownership, type, and Medicaid inpatient utilization rate (MIUR) • Medicare Cost Reports (MCR), 2011-2014 • Hospital financial information: Operating margins [(patient revenue – operating expenses)/ patient revenue] UC costs (charity care and bad debt) Share of operating expenses that UC costs represent • Interviews with executives from 7 hospitals in Medicaid expansion and non-expansion states that receive Medicaid DSH payments (MACPAC 2017)
Analysis Sample and SNH Definition • Balanced sample of hospitals (n=2502) • Acute, short-term, non-federal facilities • Complete AHA and MCR data (2011-2014) • No outliers for financial indicators • Not in early ACA Medicaid expansion state • SNHs (n=329) • >1 standard deviation above the state mean Medicaid inpatient utilization rate (MIUR) (MACPAC 2016, 2017, Bazzoli 2014)
Methods • Difference-in-difference (DD) analyses to examine the association between ACA Medicaid expansion and selected hospital financial measures • Weighted by net patient revenue • Ran separately for SNHs and non-SNHs • Pre-ACA: 2011-2013, Post-ACA: 2014 • Semi-structured telephone interviews conducted with 12 executives in 7 SNHs located in both expansion and non-expansion states during summer/fall 2016 • What is the role of Medicaid DSH payments in the hospital? • What would they do if DSH payments were cut?
Descriptive Statistics, 2013 (n=2502) Non-SNHs SNHs (n=2173) (n=329) Ownership Govt, non-federal 430 (20%) 107 (33%) Not-for-profit 1398 (64%) 186 (57%) For-profit 345 (16%) 36 (11%) Type Teaching 484 (22%) 66 (20%) Critical access 655 (30%) 129 (39%) Financials (means, weighted by net patient revenue) Operating margins 1.9% -1.2% UC costs $13.7M $16.6M Share of operating expenses UC costs represent 4.4% 5.8% Medicaid Inpatient Utilization Rate (MIUR) 16.5% 39.7% Source: AHA Survey, 2013; Medicare Cost Reports, 2013
Change in Mean Operating Margins, Pre (2011-2013) and Post (2014) ACA Non-SNH SNH 3.00% 2.50% 2.00% Percentage Points 1.50% 1.19% 1.00% 0.78% 0.50% 0.50% 0.00% -0.50% -0.37% -1.00% Non-Expansion Expansion Non-Safety Net DD coefficient: 0.0040964, p=0.665 Safety Net DD coefficient: -0.008776, p=0.619 Source: AHA Survey, 2013-2014; Medicare Cost Reports, 2011-2014, weighted by net patient revenue
Change in Mean Total Uncompensated Care, Pre (2011-2013) and Post (2014) ACA Non-SNH SNH $1,000,000 $594,554 $0 -$1,000,000 US Dollars -$931,835 -$2,000,000 -$3,000,000 -$4,000,000 # * -$3,849,339 -$4,110,522 -$5,000,000 Non-Expansion Expansion *Non-Safety Net DD coefficient: -3178687, p=0.00 # Safety Net DD coefficient: -4443893, p=0.017 Source: AHA Survey, 2013-2014; Medicare Cost Reports, 2011-2014, weighted by net patient revenue
Change in Mean Share of Operating Expenses Represented by UC, Pre (2011-2013) and Post (2014) ACA Non-SNH SNH 0.00% -0.20% -0.40% Percentage Points -0.41% -0.60% -0.61% -0.80% -1.00% -1.20% -1.19% -1.40% * -1.41% -1.60% Non-Expansion Expansion *Non-Safety Net DD coefficient: -0.0080725, p=0.000 Safety Net DD coefficient: -0.0077436, p=0.118 Source: AHA Survey, 2013-2014; Medicare Cost Reports, 2011-2014, weighted by net patient revenue
Even w/Medicaid expansion, SNHs fared worse financially Post-ACA Financial Indicators (weighted means) – Hospitals in Expansion States, 2014 Share of Operating Expenses Uncompensated Care Operating Margin that are UC $14,147,257 $9,194,968 4.70% 2.73% 0.61% -6.24% Non-Safety Net Safety Net Source: AHA Survey, 2013-2014; Medicare Cost Reports, 2014, weighted by net patient revenue
Importance of Medicaid DSH: Views of SNH Executives • Role of Medicaid DSH in SNHs and communities • Help cover UC cost of care for uninsured patients • Help “backfill low Medicaid rates” • Support community services (e.g., trauma and burn services) • Fund services particularly needed by Medicaid and uninsured patients (e.g., mental health and addiction services, birthing services, AIDS clinics, social determinants of health) • Impending federal DSH cuts would have major implications for SNHs • Reduce community programs, services or staff • Move away from mission of caring for the poor: “ The survival instinct outweighs the mission at some point…..[DSH cuts would cause SNHs] to go away from what they do and to look like the rest of non-profits ”
Conclusions and Policy Implications • Within 1 st year of ACA, SNHs in Medicaid expansion states associated with: • Larger decreases in UC costs compared to SNHs in non-expansion states • Negative operating margins and higher UC costs than non-SNHs in expansion states • Despite increased coverage under ACA, SNHs still care for uninsured • SNH executive emphasized importance of DSH payments to their financial health and mission of caring for the poor • Raises fundamental questions: • Do we want to continue to support SNHs that specialize in serving the poor? • If yes, should support continue through Medicaid DSH payments, or alternatively, should Medicaid pay better rates for patient care?
For Additional Information Contact: Christal Ramos cramos@urban.org Reference: MACPAC 2017 Report to Congress: https://www.macpac.gov/publication/march-2017-report-to-congress-on- medicaid-and-chip/ MACPAC profiles of interviewed DSH hospitals: https://www.macpac.gov/publication/profiles-of-disproportionate-share- hospitals/
Characteristics of all vs. included hospitals All hospitals Included hospitals (n=6571) (n=2502) Ownership Govt, non-federal 1278 (20.1%) 537 (21.5%) Not-for-profit 3284 (51.69%) 1584 (63.3%) For-profit 1734 (27.3%) 381 (15.2%) Govt, federal 57 (0.9%) 0 (0%) Type Acute, short-term 4805 (75.6%) 2502 (100%) Psychiatric 488 (7.7%) 0 (0%) Rehab 273 (4.3%) 0 (0%) Acute, long term 450 (7.1%) 0 (0%) Medicaid expansion status 2014 expansion state 1001 (15.2%) 946 (37.8%) Early expansion state 791 (12.04%) 0 (0%) Safety net Safety net hospitals 1229 (18.7%) 329 (13.2%)
Difference in Mean Total Charity Care, Pre (2011-2013) and Post (2014) ACA Non-Safety Net Safety Net $1,000,000 $619,707 $165,320 $0 -$1,000,000 -$2,000,000 * -$2,554,217 -$3,000,000 -$4,000,000 # -$5,000,000 -$4,713,690 Non-Expansion Expansion *Non-Safety Net DD coefficient: -2719536, p=0.00 #Safety Net DD coefficient: -5333397 p=0.00 Source: AHA Survey, 2013-2014; Medicare Cost Reports, 2011-2014
Difference in Mean Total Bad Debt, Pre (2011-2013) and Post (2014) ACA Non-Safety Net Safety Net $400,000 $188,845 $200,000 $85,203 $0 -$200,000 -$400,000 -$600,000 -$800,000 -$856,116 -$1,000,000 -$1,200,000 * -$1,272,387 -$1,400,000 Non-Expansion Expansion *Non-Safety Net DD coefficient: -1083653, p=0.00 Safety Net DD coefficient: --941320 p=0.196 Source: AHA Survey, 2013-2014; Medicare Cost Reports, 2011-2014
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