Health Care

Due to Medicaid expansion, many rural hospitals face closure

March 11, 2024

Ray Carter

When a ballot measure expanding Oklahoma’s Medicaid program to include many able-bodied adults narrowly passed in 2020, supporters claimed expansion would provide long-term financial stability for rural hospitals.

But now two reports in less than one year have warned a wide swath of Oklahoma rural hospitals could soon close, and a third report has identified Medicaid expansion as a primary cause of those likely closures.

The reason is simple: Medicaid doesn’t cover the cost of treatment. Therefore, the more patients put on Medicaid, the more money hospitals lose.

“The more people that are shifted from private insurance to Medicaid, the higher the Medicaid shortfalls, and the lower hospital profits,” wrote Michael Greibrok and Hayden Dublois in a new study from the Foundation for Government Accountability (FGA). “Hospitals are learning that you cannot become solvent by providing more and more services below cost. This is a surefire way to bankruptcy, not solvency.”

Greibrok, senior research fellow at FGA, and Dublois, data and analytics director for FGA, reviewed the federal filings of more than 4,000 hospitals nationwide. In 2013, the final year before Medicaid expansion was implemented under the federal Affordable Care Act (“Obamacare”), the FGA report showed that hospitals in states that embraced expansion reported just over $10 billion in losses due to Medicaid.

But by 2021, the most recent year for which public data is available, those Medicaid losses had ballooned to $22.3 billion at those states’ hospitals, an increase of 115 percent.

In contrast, hospitals in non-expansion states (of which there are still 10 today) saw their Medicaid shortfalls increase by only 6 percent.

The picture doesn’t get better when looking at overall finances.

“In terms of total hospital profits, expansion states and non-expansion states are moving in opposite directions,” the FGA report stated.

The report found that hospital profits in non-expansion states are now higher than profits in states that expanded Medicaid to include able-bodied adults.

In expansion states, hospitals’ average profit margin fell from 6.2 percent in 2013 to just 1.4 percent in 2021.

But in non-expansion states hospital profits increased from 4.9 percent in 2013 to 7 percent in 2021, meaning hospital profits in states that did not expand Medicaid are now “five times that of hospitals in expansion states” on average, the report noted.

Proponents of Medicaid expansion argued it would reduce the amount of charity care provided by rural hospitals. But those savings have been dwarfed by the increased losses generated by Medicaid.

Proponents of Medicaid expansion did keep one campaign promise: Under Medicaid expansion, taxpayer spending on the program has skyrocketed in Oklahoma.

A recent budget document from the Oklahoma Health Care Authority, which administers Medicaid, shows Medicaid spending has almost doubled from $5.7 billion in the 2019 state budget year to $10.5 billion in the current 2024 budget year, meaning taxpayer spending on Medicaid payments to Oklahoma medical providers is now $4.7 billion more than it was just five years ago, an increase of 81 percent.

Yet Oklahoma rural hospitals are in worse shape than ever, despite that gusher of spending.

The latest research conducted by the Chartis Center for Rural Health finds that percentage of America’s rural hospitals operating in the red jumped from 43 percent to 50 percent in the last 12 months, noting that it is the highest percentage of rural hospitals losing money in the past decade and the single largest percentage change seen in a 12-month period.

The report said Oklahoma has 22 rural hospitals vulnerable to closure.

The Chartis Center estimated a larger percentage of Oklahoma rural hospitals are vulnerable to closure than their counterparts in several non-Medicaid-expansion states such as Texas, Wyoming, Wisconsin, Mississippi and Georgia.

The Chartis Center report also showed a larger share of Oklahoma rural hospitals operating in the red than hospitals in non-expansion states including Texas, Wisconsin, Florida, Georgia and South Carolina.

The report also showed that the states with the highest percentage of rural hospitals operating at a loss include some that expanded Medicaid, such as New York (83 percent) and Vermont (75 percent).

Last year, a report by the Center for Healthcare Quality and Payment Reform (CHQPR) found that about half of Oklahoma’s rural hospitals are at risk of closing with nearly one-in-three rural hospitals at risk of “immediate” closure.

According to the CHQPR report, Oklahoma had 37 rural hospitals that are at risk of closing with 24 facing “immediate” risk of closing.

The Center for Healthcare Quality and Payment Reform also reported that 58 of Oklahoma’s 78 rural hospitals, or 74 percent, were reporting financial losses on services.

Those numbers are significantly worse than the financial status of Oklahoma rural hospitals prior to Medicaid expansion.

In July 2019, GateHouse Media reported that just 52 percent of rural hospitals in Oklahoma lost money from 2011 through 2017.

Experts say the design of Medicaid, and the flaws of Medicaid expansion, are to blame for Oklahoma rural hospitals’ increasing financial challenges.

Nationally, Medicaid pays far less for treatment than what private insurance pays. Medicaid pays hospitals about 78 percent of what Medicare pays for the same treatments and procedures and just 62 percent of what private health insurance pays.

Typically, hospitals offload the increased losses created by Medicaid by charging even higher prices to patients with private insurance, meaning Medicaid expansion increases the cost of medical care for Oklahomans.

But in rural areas, hospitals struggle to recover Medicaid losses because under Medicaid expansion many patients who were previously covered by private insurance are now on Medicaid. That means the hospitals are being paid less for treating the same patients and have fewer privately insured patients on whom to offload Medicaid losses.

“As a higher proportion of hospital services are billed to Medicaid because of expansion, there are not enough private payments to boost back profits,” the FGA report stated. “This is especially true in rural areas without a large patient base to draw from.”

In an interview, Dublois summed up the report’s finding in one sentence.

“Medicaid expansion isn’t a savior for rural hospitals—it’s a nightmare,” Dublois said.

Broken promises from Medicaid-expansion backers

The dire financial figures at Oklahoma’s rural hospitals are in stark contrast to the promises made by Medicaid-expansion backers.

Under the 2010 federal Affordable Care Act, better known as “Obamacare,” states were allowed to expand Medicaid to add many able-bodied adults to the welfare program. However, Oklahoma policymakers did not embrace the expansion because of the increased state cost.

Eventually, activists used the initiative petition process to put expansion on the ballot as State Question 802. The measure passed by a very slim margin in June 2020, and Medicaid expansion went into effect starting in July 2021.

The SQ 802 campaign included many promises that Medicaid expansion would provide financial security for rural hospitals.

The website for the “Yes on 802” campaign declared that Medicaid expansion would “keep our rural hospitals open.” A campaign ad for “Yes on 802” similarly claimed Medicaid expansion would “keep rural hospitals open.”

In May 2020, the Oklahoma Hospital Association released a study claiming Medicaid expansion would create 27,280 total jobs and “positively impact both urban and rural areas in Oklahoma.”

“Rural communities would also benefit from the positive economic impact that Medicaid expansion would have in protecting jobs and healthcare services at vulnerable rural hospitals that have been on the verge of closure for years,” the Oklahoma Hospital Association report claimed.

However, there were signs prior to SQ 802’s passage that officials at the Oklahoma Hospital Association knew those predictions had little basis in reality.

At a September 2019 legislative meeting, Jay Johnson, president and CEO of Duncan Regional Hospital and then-chairman of the Oklahoma Hospital Association’s executive committee, admitted that hospitals lose money on Medicaid patients even as he advocated for Medicaid expansion.

“On every government payer, we don’t make a profit,” Johnson said. “At our hospital, whether we’re taking a Medicare or Medicaid patient, our expenses are greater than what we will get paid.”

A 2019 report by Navigant Consulting included data on states with the most community-essential rural hospitals at risk for closure. The five states with the highest number of those facilities were states that had expanded Medicaid.

In addition, the on-the-ground reality for rural health care in expansion states ran counter to the picture painted by expansion advocates in Oklahoma. For one thing, Oklahoma had more rural hospitals prior to Medicaid expansion than many larger states did after expansion.

The Center for Healthcare Quality and Payment Reform (CHQPR) report showed that Oklahoma has far more rural hospitals—in outright raw numbers—than many Medicaid-expansion states with much larger populations. For example, Oklahoma has 78 rural hospitals while California has just 56. New York has just 51. Pennsylvania has only 41.

On a per-capita basis, the gap between Oklahoma and those states is even wider.

Oklahoma has one rural hospital for every 51,529 people—and did so prior to Medicaid expansion.

In contrast, the ratio is far worse in many states that expanded Medicaid well before Oklahoma.

In Pennsylvania, there is one rural hospital for every 316,392 people. New York has just one rural hospital for every 385,749 people. In California, the ratio is one rural hospital for every 697,153 people.

Based on recent reports, however, the number of rural hospitals in Oklahoma may decline significantly in the next few years as a result of Medicaid expansion, so the ratio of rural hospitals to residents in Oklahoma could start to match the poor statistics in other expansion states.

Dublois doubts Medicaid-expansion supporters will admit their error, despite the growing mountain of evidence.

“Hospital associations in expansion states like Oklahoma will continue to cast blame for their financial struggles on other causes,” Dublois said, “now that Medicaid failed to live up to the promises of expansion advocates.”