Healthcare News & Insights

Healthcare reform may hurt hospitals’ profits

It’s been said that the expansion of Medicaid through the Affordable Care Act has helped hospitals improve their bottom lines. But a new analysis suggests that healthcare reform may not be as beneficial as it seems to hospitals’ financial picture. 

Dollar DoctorMoody’s Investor Service recently released a report about the effects of the Medicaid expansion on hospitals. According to an article in the Wall Street Journal discussing the findings, while hospitals are now seeing more patients with insurance, this isn’t always creating a more robust cash flow.

Unpaid bills are declining at nonprofit hospitals in states that expanded Medicaid. In fact, the rates of unpaid bills at these hospitals dropped an average of 13% when compared with rates from 2013. However, the operating margins for these hospitals weren’t any higher than facilities in states that didn’t expand Medicaid.

Costs outweigh savings

The Wall Street Journal article specifically discusses the situation in one hospital system, Southern Illinois Healthcare. The system has three hospitals in St. Louis, and the amount of unpaid bills dropped by about $9 million for all three facilities.

But this decrease was negated by the sheer number of Medicaid patients who sought care at the hospital. Many of the patients were very sick, since they’d been putting off receiving routine care for years. So the hospitals had to give them some fairly expensive care.

Overall, the hospitals provided $28 million worth of care to these patients. And because Medicaid reimbursement rates are relatively low, the hospitals only received about half of that money back.

In all, the article estimates that Southern Illinois Healthcare actually ended up with a total loss of around $5 million.

Conflicting results

Data from the Centers for Medicare & Medicaid Services (CMS) paints a different picture of healthcare reform and expanded insurance access. A report the agency released just a few months ago said that not only was uncompensated care on the decline due to healthcare reform, but hospitals would save billions of dollars because of Medicaid expansion.

While this may be the case, the CMS report failed to take into account the increased costs hospitals may incur when treating a higher volume of patients – and whether the reimbursement from Medicaid manages to bridge the entire gap.

And even if a hospital may look like it’s turning a profit after taking on more newly insured patients under the ACA, the money generated may not end up boosting the bottom line.

Reason: Facilities may end up immediately investing that profit into other areas, including recruiting additional staff members to handle the increased volume of patients.

So although healthcare reform has brought hospitals more patients, it may take several years of in-depth analysis before it can be determine if the extra patients actually improve revenue generation.

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