Founder and Principal - KDB Healthcare

Dissertation Title

Effects of Medicaid Expansion on the Financial Performance of Rural Hospitals

Dissertation Abstract

The purpose of this research was to examine the effects of Medicaid expansion on the financial performance of rural hospitals. The analysis compares Medicaid revenue, uncompensated care cost and operating margins between rural hospitals in states that expanded Medicaid and rural hospitals in states that did not expand Medicaid. Strategic Management Theory was used to develop a theoretical framework to address three primary hypotheses. Secondary data from the Medicare Cost Report (MCR), the Agency for Healthcare Research and Quality (AHRQ), and American Hospital Association Annual Survey (AHA) was used to test hypothesized relationships using fixed effects regression models.

The analysis found significant statistical differences between rural hospitals in expansion states and rural hospitals in non-expansion states. Specifically, hospitals in expansion states experienced, on average, higher Medicaid revenue in 2012, pre-expansion, than hospitals in non-expansion states. However, expansion states experienced, on average lower operating margins compared to hospitals in non-expansion states.

We found support for hypothesis 1. Rural hospitals in expansion states had an increase in Medicaid revenue following the implementation of Medicaid expansion (644,682, p<0.01), indicating that rural hospitals in expansion states experienced a larger increase in Medicaid revenue, as a percent of total patient revenue, relative to rural hospitals in non-expansion states. Similarly, we found support for hypothesis 2. Rural hospitals in expansion states had a decrease in uncompensated care costs following the implementation of Medicaid expansion (-393,053.8, p <0.05), indicating that rural hospitals in expansion states experienced fewer or a decrease in uncompensated care costs of operating expenses, relative to rural hospitals in non-expansion states. Lastly, we found no support for hypothesis 3, that rural hospitals in expansion states would experience greater increases in operating margins than rural hospitals in non-expansion states.