Health Care

Medicaid expansion failing rural hospitals

August 17, 2023

Ray Carter

When State Question 802 narrowly passed a voter referendum in June 2020, allowing able-bodied adults to be added to the state’s Medicaid program, backers promised it would financially stabilize and save rural hospitals.

But a new report shows that more than two years into Medicaid expansion in Oklahoma the share of rural hospitals facing financial challenges has increased.

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 report, Oklahoma has 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%, are reporting financial losses on services.

Those figures run counter to the promises made by advocates of Medicaid expansion.

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 for several years 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 increase spending by $1 billion per year in Oklahoma “and keep our rural hospitals open.” A campaign ad for “Yes on 802” similarly claimed Medicaid expansion would “keep rural hospitals open.”

But the Center for Healthcare Quality and Payment Reform report indicates that rural hospitals are worse off today than they were prior to Medicaid expansion.

In July 2019, prior to Medicaid expansion, GateHouse Media reported that 52% of rural hospitals in Oklahoma lost money from 2011 through 2017. That’s a lower share than the 74% reporting financial losses today, according to the Center for Healthcare Quality and Payment Reform report.

That outcome doesn’t surprise one expert who has followed Medicaid expansion across the nation.

“Medicaid expansion doesn’t save hospitals—it harms them,” said Hayden Dublois, data & analytics director for the Foundation for Government Accountability. “Nearly 50 hospitals have closed in expansion states since 2014–representing almost 5,400 hospital beds—despite the promises by advocates that expansion would be a silver bullet for hospital finances. Some of these hospitals directly cited expansion as a reason for closure. In contrast, hospital closures in non-expansion states are almost never caused by a lack of Medicaid expansion.”

While Medicaid expansion has not reduced the number of at-risk rural hospitals, it has increased taxpayer spending on the program.

The Oklahoma Health Care Authority, which administers Medicaid, reported that Medicaid spending in Oklahoma surged from just over $6 billion in 2021 to more than $7.8 billion in the 2022 state budget year. That was a spending increase of nearly 48% compared to 2017 with much of the new spending in 2022 tied to Medicaid expansion.

So if taxpayer spending went up and the number of patients on Medicaid increased, why have rural hospitals not become more financially sound?

“The reasoning is simple: since Medicaid reimburses hospitals at lower levels than private insurance, hospitals are financially harmed as countless able-bodied adults move off of exchange plans and employers’ plans and onto Medicaid,” Dublois said.

That’s a reality Medicaid-expansion backers previously admitted.

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

“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.”

(Johnson endorsed Medicaid expansion anyway even after saying the program creates financial problems for hospitals.)

Critics, such as Dublois, have long noted that individuals added to Medicaid through the Affordable Care Act’s expansion include many people who would have otherwise had private insurance. Because Medicaid reimburses roughly 60 percent of what private insurance reimburse nationwide, that translates into greater financial losses for many hospitals after Medicaid expansion.

The Center for Healthcare Quality and Payment Reform report noted that the factors causing financial losses at rural hospitals include the fact that “at-risk hospitals are losing money on uninsured patients and Medicaid patients.”

At rural hospitals that are not at risk of closure, the report stated those facilities “receive payments from private health plans that not only cover the costs of delivering services to the patients with private insurance, but those payments also offset the hospitals’ losses on services delivered to uninsured and Medicaid patients.”

In effect, that means people with private insurance are paying higher rates to cover the hospital losses created by Medicaid patients.

“Most ‘solutions’ for rural hospitals have focused on increasing Medicare or Medicaid payments or expanding Medicaid eligibility due to a mistaken belief that most rural patients are insured by Medicare and Medicaid or are uninsured,” the Center for Healthcare Quality and Payment Reform report stated. “In reality, about half of the services at the average rural hospital are delivered to patients with private insurance (both employer-sponsored insurance and Medicare Advantage plans).”

In neighboring Texas, which has not expanded Medicaid, the report showed that a significantly lower share of rural hospitals report losses than their counterparts in Oklahoma. But in New York, which has expanded Medicaid, 80% of rural hospitals reported losses and 43% were at risk of immediate closure, surpassing even Oklahoma’s dismal numbers.

Dublois noted that the CHQPR study shows that roughly one in four rural hospitals “are at risk of closure in states that have already expanded Medicaid.”

The CHQPR report is not the only study that has highlighted that trend.

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.

Reliance on Medicaid was a factor in the financial woes of rural hospitals, according to the report.

“Residents who remain in rural communities tend to be either very old or very young, and these communities often have higher rates of uninsured, Medicaid, and Medicare patients, leading to more uncompensated and under-compensated care,” the Navigant report stated.

SQ 802 narrowly passed with just 50.49% of the vote with the “yes” vote prevailing primarily because of mail-in absentee votes from urban areas. Statewide, a majority of voters in 70 of Oklahoma’s 77 counties voted “no” on SQ 802.

Some who advocated for Medicaid expansion at that time express no second thoughts despite the worsening trend lines in rural hospitals after expansion was implemented.

“Medicaid expansion has been tremendously successful in every state where it has been implemented and not a single rural hospital has closed in Oklahoma for financial reasons since its implementation two years ago,” said Rich Rasmussen, president & CEO, Oklahoma Hospital Association.

But others express concern about hospital stability although they have not expressly linked those financial challenges to Medicaid expansion.

State Rep. Marcus McEntire, a Duncan Republican who was a vocal advocate for Medicaid expansion, continued to tout the program as recently as last year.

On his campaign website, which is updated through 2022, McEntire declared, “We are at the cusp of rural hospitals being financially self-sufficient since the ACA (Affordable Care Act) was passed.”

But by April 2023, McEntire’s tune had changed regarding hospital stability. In an article in The Oklahoman, which focused on a dispute over $600 million in federal COVID bailout funds, McEntire declared, “My concern is that we don’t use the $600 million for stabilizing the health care system because right now the hospitals are all under water.”

For opponents of Medicaid expansion, the current landscape of rural health care in Oklahoma is not shocking.

“Put simply, expansion isn’t a silver bullet for hospitals,” Dublois said. “It’s a nail in the coffin.”