The medicaid windfall: Medicaid expansions and the target efficiency of hospital safety-net subsidies

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Abstract

Federal hospital safety-net subsidy programs seek to defray costs of uncompensated hospital care, but eligibility criteria are based on Medicaid volume. Therefore, subsidies have poor “target efficiency”: hospitals that provide large amounts of uncompensated care may not receive subsidies (exclusion error), while hospitals that provide little uncompensated care may receive subsidies (inclusion error). Medicaid expansions may exacerbate poor targeting by increasing Medicaid patient volume while reducing uncompensated care. Using hospital administrative data from 2003 to 2019, I quantify the target efficiency of Medicare and Medicaid Disproportionate Share Hospital payments and the 340B drug discount program and quantify how changes in Medicaid eligibility affect safety-net subsidy receipt and target efficiency. I find that the ACA Medicaid expansion increased participation in Medicare DSH and 340B, especially among non-safety-net hospitals (inclusion errors) resulting in a shift of approximately $5B from safety-net to non-safety-net hospitals. I find the opposite for a Medicaid contraction in Tennessee in 2005. My results demonstrate an unintended consequence of Medicaid-based eligibility criteria: changes in Medicaid coverage affect the allocation of public subsidies for safety-net patients.

Original languageEnglish (US)
Article number104583
JournalJournal of Public Economics
Volume208
DOIs
StatePublished - Apr 2022

Bibliographical note

Funding Information:
I wish to thank the following individuals for valuable input on the paper: Melinda Buntin, James Campbell, Rena Conti, Laura Dague, Hannah Geressu, Andrew Goodman-Bacon, Christopher Ody, Coady Wing, and participants of the East-North-South-Central Health Economics and Policy Conference, the Association for Public Policy Analysis and Management Conference, and the seminar participants in the Department of Health Policy and Administration at Pennsylvania State University, the Division of Health Policy and Management at University of Minnesota, and the Indiana University Purdue University Indiana Department of Economics. This work was funded by the Altarum Institute and the Robert Wood Johnson Foundation. The author received support from the National Heart Lung and Blood Institute and the Commonwealth Fund while this project took place.

Funding Information:
I wish to thank the following individuals for valuable input on the paper: Melinda Buntin, James Campbell, Rena Conti, Laura Dague, Hannah Geressu, Andrew Goodman-Bacon, Christopher Ody, Coady Wing, and participants of the East-North-South-Central Health Economics and Policy Conference, the Association for Public Policy Analysis and Management Conference, and the seminar participants in the Department of Health Policy and Administration at Pennsylvania State University, the Division of Health Policy and Management at University of Minnesota, and the Indiana University Purdue University Indiana Department of Economics. This work was funded by the Altarum Institute and the Robert Wood Johnson Foundation . The author received support from the National Heart Lung and Blood Institute and the Commonwealth Fund while this project took place.

Publisher Copyright:
© 2021 Elsevier B.V.

Keywords

  • Health economics
  • Public economics
  • Safety-net
  • Target efficiency

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