1. Financial Impact of AHCA Medicaid Provisions on Safety-Net Hospitals
PREPARED FOR:
The Commonwealth Fund
PRESENTED BY:
Al Dobson, Ph.D.
June 20, 2017

2. © 2017 Dobson DaVanzo & Associates, LLC. All Rights Reserved.
Purpose
To examine how the AHCA Medicaid provisions, which are estimated to reduce federal Medicaid spending by $834 billion over ten years, will impact the financial stability of safety-net hospitals
Safety-net hospitals were defined as acute care hospitals meeting the “Deemed DSH Hospital” criteria
Dobson | DaVanzo Hospital Financial Simulation Model (HFSM) used to estimate the financial impact on these hospitals due to the AHCA Medicaid provisions
© 2017 Dobson DaVanzo & Associates, LLC. All Rights Reserved.

3. AHCA Medicaid Provisions will Negatively Impact Safety-Net Hospital Net Income
Five key Medicaid provisions under the AHCA were modeled and their impact on safety-net hospital net income was measured relative to current law
Change in Net Income for Safety-Net Hospitals
Due to AHCA Medicaid Provisions (2017 – 2026)
 AHCA Medicaid Provision
Excess Income/(Loss) (millions)
Current Law
$74,064
Eliminating Individual Mandate and Medicaid Expansion
($19,444)
Eliminating Medicaid DSH Reductions
$13,711
Eliminating 3-Month Retroactive Eligibility
($13,263)
Imposing Per-Capita Spending Limits
($3,646)
Safety-Net Funds to Hospitals in Non-Expansion States
$4,365
Total Effect of All AHCA Medicaid Provisions Modeled
($18,277)
Source: Dobson | DaVanzo analysis of Medicare Hospital Cost Report Data for 2015
© 2017 Dobson DaVanzo & Associates, LLC. All Rights Reserved.

4. AHCA Medicaid Provisions will Negatively Impact Safety-Net Hospital Margins
By 2026, we project total margins for safety-net hospitals to be near zero as well as a substantial decline in operating margins
Projected Total and Operating Margins for
Safety-Net Hospitals
Total Margins
Operating Margins
Source: Dobson | DaVanzo analysis of Medicare Hospital Cost Report Data for 2015
© 2017 Dobson DaVanzo & Associates, LLC. All Rights Reserved.

5. Medicaid Expansion States
Safety-Net Hospitals in Expansion States will Experience Largest Impact
Projected Total and Operating Margins for Safety-Net Hospitals in Expansion and non-Expansion States 2015 – 2026
Medicaid Expansion States
Non-Expansion States
Total Margins
Total Margins
Operating Margins
Operating Margins
Source: Dobson | DaVanzo analysis of Medicare Hospital Cost Report Data for 2015
© 2017 Dobson DaVanzo & Associates, LLC. All Rights Reserved.

6. Safety-net hospitals with highest proportion of vulnerable patients will be hit hardest
Safety-net hospitals ranked highest to lowest based on hospital’s proportion of low- income patients treated
Those in highest tercile have the lowest operating and total margins under current law, and will experience the greatest negative impact from the AHCA, regardless of whether they are located in a Medicaid expansion or non-expansion state.
Total Margin in 2026
Operating Margin in 2026
Proportion of Low-income Patients
(1)
Current Law
(2)
After AHCA
(3)
Percentage Point Change
(4)
(5)
(6)
Safety-Net Hospitals in Medicaid Expansion States
Total
2.7%
-0.5%
-3.2%
-4.6%
-8.5%
-3.9%
Lowest Tercile
5.5%
3.6%
-1.9%
0.7%
-1.6%
-2.2%
Middle Tercile
-3.5%
-4.1%
-5.6%
-10.4%
-4.9%
Highest Tercile
0.0%
-4.7%
-12.3%
-18.6%
-6.3%
Safety-Net Hospitals in Non-Expansion States
3.2%
2.2%
-1.0%
-2.0%
-3.1%
-1.2%
5.4%
4.8%
-0.6%
1.9%
1.2%
-0.7%
2.3%
1.1%
-1.1%
-4.5%
-1.3%
2.0%
0.5%
-1.5%
-4.8%
-6.6%
-1.8%
2.9%
-2.4%
-3.6%
-6.4%
-2.8%
Source: Dobson | DaVanzo analysis of Medicare Hospital Cost Report Data for 2015
© 2017 Dobson DaVanzo & Associates, LLC. All Rights Reserved.

7. © 2017 Dobson DaVanzo & Associates, LLC. All Rights Reserved.
Key Findings
We estimate that by 2026 total margins would drop to 0.5 percent compared to current law estimates of 2.9 percent (83% reduction).
Safety-net hospitals in Medicaid expansion states would experience the largest negative impact on margins under the AHCA - particularly, small rural hospitals as well as small and mid-size urban hospitals.
Safety-net hospitals in states that expanded Medicaid may see uncompensated care costs more than double compared current law by 2026.
Safety-net hospitals that have the highest commitment to serving low-income and Medicaid patients tend to have the lowest operating and total margins under current law and will be negatively impacted the most by the AHCA.
The diminished financial stability of safety-net hospitals under the AHCA not only affect the institutions and Medicaid patients, but affect the entire community served by these hospitals.
© 2017 Dobson DaVanzo & Associates, LLC. All Rights Reserved.