Hospitals in the 25 states that will not expand Medicaid in 2014 will face "greater financial challenges and rating pressure" compared with hospitals in states that will expand Medicaid, according to a report from Fitch Ratings.
Fitch analysts said states that are not expanding Medicaid generally have higher uninsured rates and higher poverty rates, which will adversely affect hospitals due to higher levels of uncompensated care.
In addition, Medicare and Medicaid disproportionate share hospital funding is eroding under the Patient Protection and Affordable Care Act, although hospitals with more uncompensated care are expected to receive larger chunks of DSH payments. Moody's Investors Service has also said the loss of DSH payments will hurt the finances and credit profiles of hospitals in states that are not expanding Medicaid.
Overall, hospitals and health systems in states not expanding Medicaid are expected to lose out on more than $200 billion in additional revenue over the next 10 years.
"Relative to hospitals in states that expand Medicaid, hospitals in states not expanding Medicaid are likely to be more financially challenged in the near term due to the combination of the foregone revenue and the reimbursement cuts," according to Fitch's report. "These hospitals will face greater pressure to improve productivity or to cut unprofitable service lines to maintain financial performance and rating stability. However, drawing conclusions about the long-term credit implications on hospitals in nonexpanding states is difficult due to the ability of a state to opt into and out of Medicaid coverage expansion."
Fitch's analysis mirrors several others that have been released. Last December, an article in the New England Journal of Medicine similarly said that "states forgoing the Medicaid expansion are likely to leave a substantial uncompensated care burden on hospitals."
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