Increased Insurance Through Affordable Care Act, Medicaid Helped PA Hospitals Save $80M Last Year

May 8, 2018

The insurance mandates of the Affordable Care Act and expansion of Medicaid helped prevent hospitals in Pennsylvania from losing more than $80 million in 2017. 

The findings come via a report on the state's health care finances from the Pennsylvania Health Care Cost Containment Council (PHC4), an independent state agency established in the 1980s by the state legislature to analyze and report information to improve the costs and quality of health care in Pennsylvania. 

The state's 169 general acute care facilities lost $83 million less last fiscal year in the costs of charity care for uninsured patients and outstanding bills from patients who have not paid, as compared to fiscal year 2016. That's part of a four-year decline in uncompensated care.

PHC4 executive director Joe Martin says it's because of federal and state changes to health care provisions.

"The two main things that people attribute this to is the Affordable Care Act, and many more people having insurance under [that], and the expansion of Medicaid here in Pennsylvania, which has brought many more people into the government-insured pot," he said. 

Although government health care has decreased charity care because more patients have insurance, Martin says rising co-pays and deductibles have increased bad debt. 

Hospitals statewide have also netted $43.6 billion in patient revenue in fiscal year 2017, a 3.9 percent increase over the last year. However, operating margins have decreased slightly from 6.02 percent to 5.15 percent, due to operating expenses narrowly outpacing operating revenues. Total margins are up by 0.66 percent, which accounts for both operating income and income from other sources, like investments and contributions. 

Southwestern Pennsylvania's 29 general hospitals have kept pace, with numbers that match and sometimes rival those of the state average. Martin says the Pittsburgh metropolitan area's hospitals have most always performed well in PHC4's annual analysis. Allegheny General, Forbes, West Penn and most University of Pennsylvania Medical Center general hospitals have increased net patient revenue year after year since 2014. 

Martin believes those numbers are a sign of a healthy hospital ecosystem.

"We see much more positive results, especially this year," he said. "When you look across the board, we see very healthy operating margins in every region of the state."

But not all hospitals are faring as well as the state average. Martin notes that the number of hospitals that have lost money in fiscal year 2017 has increased.

"I think what you see is a situation of a widening gap between the haves and the have-nots: the hospitals that are doing well and the hospitals that are struggling," he said. 

Struggling hospitals include ones in rural areas, where the medical facilities are generally small, serve communities that suffer from widespread job loss, and host higher populations of older people reliant on Medicare and who need care more frequently, according to Martin. 

They're also found in intensely urban environments saturated with Medicaid patients. 

Martin suggests that one solution could be consolidation-- linking up smaller hospitals with big medical systems that can better bear the brunt of those costs. The strategy has proven successful in the past, Martin says, but small hospitals are reluctant.

"When that happens, typically within two years or so, we start to see their financial situation turn around," he says. "But some smaller hospitals are resistant because they don't want to lose their anchor in the community. They view themselves as a community resources, as a community institution, so they don't want to become simply another campus for a larger system."

Martin notes that the Pennsylvania Department of Health is working on the issue with an "aggressive and innovative" rural health program, but that the impact of that effort could take a few years.