Financial Challenges for Hospitals in States Not Expanding Medicaid

While the decision is up to individual states whether or not to expand Medicaid coverage, a new report reveals that hospitals and health care systems in states opting out will face greater financial challenges.

Just 25 states and the District of Columbia have chosen to expand Medicaid under the Affordable Care Act, according to The Advisory Board Company, and hospitals in the remaining states that opted out may suffer financially.

According to a Fitch Ratings report, “Adverse Expansion: Hospitals, States and Medicaid,” hospitals and health care systems in the states now expanding Medicaid could face greater financial challenges because some of these states have among the highest uninsured and poverty rates in the country.

Via: The Advisory Board Company

"Hospitals operating in states not expanding Medicaid, which usually have higher uninsured and poverty rates, will have to absorb the full impact of the ACA reimbursement cuts without the full benefit of increased insured volumes," Adam Kates, director in Fitch's Public Finance group, said in a statement.

Of the 10 states that have the highest rates of uninsured, six are not expanding Medicaid: Texas (24% uninsured), Florida (20%), Georgia (20%), Louisiana (20%), Mississippi (19%) and South Carolina (20%).

Hospitals in affluent areas that have a strong payor mix will absorb the non-expansion of Medicaid better, but some of these states that have chosen not to expand have weak payor mixes, leaving their health care systems and hospitals more vulnerable.

Some factors that could lessen the financial stress on these hospitals are the fact that reimbursement reductions will occur over a period of time, hospital funds will be redistributed to hospitals with the highest uncompensated are rates and, most importantly, any of these states can expand Medicaid in the future.

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Hospitals in these states will be exposed to more financial challenges as they absorb the full impact of the reimbursement cuts without receiving the full benefit of increased insured volumes.

The Kaiser Family Foundation and the Urban Institute reported that hospitals and health systems in the states not expanding Medicaid will lose out on an estimated $200-plus billion in revenue over the next decade.

“These hospitals will face greater pressure to improve productivity or to cut unprofitable service lines to maintain financial performance and rating stability,” according to Fitch’s report. “However, drawing conclusions about the long-term credit implications on hospitals in non-expanding states is difficult due to the ability of a state to opt into and out of Medicaid coverage expansion.”