Will increased revenue at for-profit hospitals lead more states to expand Medicaid?

Photo by Jonathan Haeber via Flickr

Photo by Jonathan Haeber via Flickr

Will large hospital systems start to pressure officials in the states that have not expanded Medicaid now that their revenues have increased more than expected in the 26 states that expanded Medicaid under the Affordable Care Act?

That question seems obvious given the results of a new report (pdf) by PwC’s Health Research Institute that showed increased revenue among the nation’s five largest for-profit hospital chains in Medicaid expansion states. The PwC report shows that in states that expanded Medicaid, the five for-profit chains—Community Health Systems (CHS), HCA Holdings, LifePoint Hospitals, Tenet Healthcare and Universal Health Services (UHS)—had more insured and fewer uninsured patients in the first half of this year than they did in the first half of 2013. Hospitals in non-expansion states experienced the opposite, the consultants said. These chains run 538 hospitals in 35 states.

PwC analyzed quarterly earnings reports filed with the SEC, industry surveys and conducted interviews with hospital executives to report that the five hospital chains saw Medicaid admissions rise 10.4 percent to 32 percent since Jan. 1. At the same time, all five hospital chains reported that admissions among self-paying patients declined sharply in all states as well. Self-paying admissions dropped by 14.7 percent at CHS, by 6.6 percent at HCS, by 30.3 percent at LifePoint, by 6.5 percent at Tenet and by 9.3 percent at UHS, the report showed.

The report was released Wednesday, Sept. 3.

That same day, Virgil Dickson at Modern Healthcare reported that Medicaid expansion may spread to four more states. “Indiana, Tennessee, Utah and Wyoming may be next in line among GOP-led states in seeking a federal green light for their conservative-oriented expansion proposals,” he wrote.

Just last week, Pennsylvania became the 27th state to expand Medicaid under the Affordable Care Act. The Keystone state will use federal funds to buy private health insurance for about 500,000 low-income residents starting next year, as Abby Goodnough reported in The New York Times.

The strong results among the chains in the states that expanded Medicaid contrast with the results of hospitals in the states that did not expand Medicaid. In non-expansion states, PwC said, “Hospitals continued to see flat or sagging admission rates and little reduction in the number of uninsured, largely non-paying patients.”

Although the PwC report did not address whether state officials in states that did not expand Medicaid will find the numbers compelling enough to reverse course, health care journalists may want to watch for state officials seeking a reason to expand Medicaid.

Commenting on what PwC learned from health system executives, Bob Valletta, PwC’s U.S. health services leader, said, “From our work with clients, we know that this [Medicaid expansion] is an important issue for executives in a number of health systems as it has a direct impact on margins and revenue increase. A number of interviewees noted the significant impact of newly insured patients from Medicaid expansion.”

As Dickson wrote in Modern Healthcare, Republican governors are continuing to push for conservative-oriented approaches in their proposals, and now that federal officials have approved Pennsylvania’s Medicaid proposal, the states have a good idea of what the Obama administration will approve.

When the U.S. Supreme Court upheld the constitutionality of the individual mandate in the Affordable Care Act in its ruling on June 28, 2012, the court also ruled made Medicaid expansion optional for states, as Kaiser Health News reported.

As a result, almost half of the states have so far declined to expand Medicaid, and so the trends PwC reported were expected. But, PwC added, “The gap in Medicaid enrollment between expansion and non-expansion states is greater than most industry analysts predicted.”

Since Jan. 1, Medicaid admissions in expansion states increased by 10.4 percent for CHS, 32 percent for HCA and 20.5 percent Tenet, PwC said. Over the same time, self-pay admissions dropped by 47.6 percent at CHS, by 48 percent at HCA and by 46 percent at Tenet, the report showed.

“In the second quarter alone, Tenet saw a $78 million reduction in unpaid care,” the PwC said. Tenet reported adjusted earnings for the second quarter of $460 million, an increase of $124 million, or 36.9 percent, as compared to $336 million in the second quarter of 2013.

CHS operates 206 hospitals in 29 states, of which 12 expanded Medicaid. “The surge in new paying customers under the ACA’s coverage expansion, and subsequent reduction in uninsured patients, accounts for about $40 million to $45 million of Community Health’s earnings, company executives said, adding that they expect another $40 million benefit through the second half of the year,” PwC said.

On July 31, CHS reported revenue for the second quarter of $4.779 billion, a 49.8 percent increase compared with $3.191 billion for the same period in 2013. Part of the increase in revenue was due to CHS’ acquisition earlier this year of Health Management Associates, a hospital chain.

HCA Holdings, the nation’s largest hospital system, operates in five Medicaid expansion states. On July 29, HCA Holdings reported revenue of $9.23 billion, an increase of 9.2 percent in the second quarter when compared with the same quarter a year earlier and net income for the quarter totaled $483 million.

At LifePoint Hospitals, which has hospitals in 20 states, seven of which expanded Medicaid, second-quarter earnings rose by 35.8 percent to $158.7 million. The company said $13 million of this amount was due to Medicaid expansion, PwC reported.

LifePoint reported revenue of $1.047 million in the second quarter, an increase of 17 percent over the $894.9 million it reported in the second quarter of 2013. Income in the second quarter rose 44.3 percent to $39.1 million, up from $27.1 million in the same period a year ago, the company reported.

Universal Health Services reported income of $155.6 million in the second quarter, a 30 percent increase over the $118.9 million it reported in the second quarter of 2013.

For further reading on this topic, see the article Beth Kutscher of Modern Healthcare wrote for AHCJ in February, in which she described how she reported on the different financial picture for hospitals in pro-ACA and anti-ACA states.

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