Hospitals begin to see impact of drop in Medicaid coverage

Hospital finances are showing mild improvement, but health systems are beginning to see the initial effects of the reduction of Medicaid coverage.

Health systems appear to be treating more patients who have lost Medicaid coverage, according to Kaufman Hall. (Image credit: ©Amazing Studio - stock.adobe.com)

Health systems are providing more charity care and seeing more bad debt, according to Kaufman Hall, the healthcare consulting firm. These developments could be the result of more people losing coverage from Medicaid, Kaufman Hall said in the new National Hospital Flash Report, which was released Wednesday.

Through most of the COVID-19 pandemic, states had to offer continuous coverage of Medicaid in order to receive additional federal aid, so the number of recipients expanded. Congress and the Biden administration agreed to end the continuous coverage provision, and now states are reassessing Medicaid eligibility. And that means some recipients no longer have coverage.

While precise figures are unclear, five million to 14 million Americans could lose Medicaid coverage, the Kaiser Family Foundation projects.

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Erik Swanson, senior vice president of data and analytics with Kaufman Hall, said hospitals are likely to see more people without coverage, or people delaying care.

“With states conducting their Medicaid eligibility redetermination, it’s predicted that hundreds of thousands of people will ultimately become uninsured,” Swanson said in a statement. “The data indicate that we may already be seeing the effects of disenrollment materialize with patients less likely to seek out the care they need and a continued rise in bad debt and charity care.”

The rise in charity care and debt came even as hospital volume fell in May, with inpatient and outpatient volumes declining. That’s another sign that hospitals may be seeing more patients without any coverage, Kaufman Halls suggests. Inpatient and outpatient revenues both fell 4% in April compared to March.

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The median operating margin for hospitals was 0% in April, compared to -0.3% in March. While that’s generally better than most of 2022, when hospital expenses typically outpaced revenues, health systems continue to struggle.

Health systems continue to see higher expenses in labor, the report notes. Labor expense per adjusted discharge rose 3% in April from March.

Hospitals appeared to be performing fewer surgeries, with operating room minutes falling 8% in April compared to March. Emergency department visits dropped 1% in April compared to March, while the average length of stay rose 1% from March to April.

Hospitals did see some relief in the costs of supplies in April, and total expenses dipped 1% from March to April. However, operating revenues fell 5% in April, compared to March.

Hospitals are likely to continue to deal with slim operating margins for the foreseeable future, Kaufman Hall has projected.

“Hospital and health system leaders must figure out how to navigate the new financial reality and begin to take action,” Swanson said in a statement. “In the face of operating margins that may never fully recover and inflated expenses, developing and executing a strategic path forward to a future that is financially sustainable is crucial.”

The hospital report, which comes out monthly, uses data from more than 900 hospitals from Syntellis Performance Solutions.