Medicaid Expansion Is a Windfall for Hospitals

Hospitals in states that expanded Medicaid have more paying customers, bolstering the bottom lines of for-profit hospital chains, a new analysis published on Wednesday shows.

“For-profit health systems, operating more than 500 hospitals in the U.S., report far better financial returns through the first half of the year than expected,” the report (PDF) from PricewaterhouseCoopers Health Research Institute found. One chain, LifePoint Hospitals, reported a 30 percent drop in “self-pay” patients, whose care hospitals often write off as a loss.

The Affordable Care Act was intended to eliminate situations where poor, uninsured patients land in emergency rooms and receive treatment for which hospitals don’t get paid. The law made those at the bottom of the income ladder—earning less than $15,500 a year for an individual or $32,200 for a family of four—eligible for Medicaid, the joint state-federal insurance program for the poor.

The hospital industry agreed to $155 billion in Medicare payment cuts in exchange for reducing the amount of care they provide for free. (That care, by the way, is paid for by higher charges to insured patients—the kind of cross-subsidy ubiquitous in American health care.) But the Supreme Court upended the deal in 2012 by making Medicaid expansion optional. Since then, 23 states, mostly in Republican control, have declined to broaden eligibility for the program. Pennsylvania is the latest to expand, reaching a deal with the White House last week.

It turns out the benefits to hospitals in states that did expand Medicaid have been robust. Big chains such as LifePoint, Tenet Healthcare, Community Health Systems, HCA, and Universal Health Services have reported declines in the amount of care they don’t get paid for and growth in their Medicaid business. “Medicaid admissions in expansion states increased by a range of 10.4% to 32% across the country’s three largest health systems since the start of the year,” the PwC report says. Uninsured admissions dropped 47 percent.

The shift has been good for for-profit hospitals’ stock prices. The chart below shows how the five major publicly traded chains compare with the Standard & Poor’s 500-stock index since the start of 2014. (Values are normalized to 100 at the start of the year to show relative change.)

The hospital industry typically has political heft in state capitals, which is one reason why many red states may eventually bend and find some compromise to expand Medicaid.

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