CHICAGO — Not-for-profit hospitals in states that expanded Medicaid saw strong drops in the amount of unpaid patient debt and charity care during the first full year of the new federal health care law, Moody's Investors Service says in a new report.
That's the first decline in bad debt in years.
But even hospitals in non-Medicaid expansion states enjoyed improved financial performance last year, Moody's found.
"On average, hospitals in all states showed stronger financial performance in 2014 compared to the prior year, following several years of weakening margins," Moody's says in the report, "Medicaid Expansion Linked to Lower Bad Debt Amid Improving Hospital Financials."
"Hospital financial performance followed similar patterns in expansion and non-expansion states throughout 2014, suggesting that as a group, hospitals in Medicaid expansion states are not translating all reductions in bad debt into improved operating margins and cash flow," analyst Daniel Steingart wrote.
The report was sparked by questions about how hospitals located in states that opted to expand Medicaid fared compared to the non-expansion state providers over the first full year of Obamacare.
Digging into the numbers, Moody's found a "significant" drop in bad debt in hospitals in Medicaid expansion states. Providers in those states saw an average reduction of 13%, with some seeing drops as large as 40%, Moody's said.
A total of 29 states, plus Washington D.C., have opted to expand the federal health care program.
But the hospitals did not necessarily translate the bad-debt declines into higher cash flow or materially better financial numbers, the ratings agency said. As a result, there was no material difference in financial performance among hospitals in expansion versus non-expansion states.
Hospitals in non-expansion states, meanwhile, saw bad debt rise throughout the year until the fourth quarter, when they too enjoyed a drop, the agency said. That could be due to an increase in charity care programs or patients finally hitting their deductibles.
Moody's concluded that other factors besides bad debt are more important to hospitals' bottom lines.
"[M]acroeconomic factors, especially the improving economy and lower employment, have a bigger impact than reductions in one expense line item," the report said. "Reductions in bad debt are being consumed by other expense growth, including salaries and pensions, and strategic investments in population health management. Finally, hospitals in non-expansion states have some benefit from the 'woodwork effect,' whereby more people enroll in insurance because there is more awareness of the issue."
