President at Research and Evaluation Group (EvalGroup)

Dissertation Title

The Effect of Medicaid Expansion on Hospitals Allowance for Bad Debt

Dissertation Abstract

The management of bad debt is a complex issue for hospitals, and if mismanaged, can impact the organization's current and future financial stability. The expansion of Medicaid through the Patient and Affordable Care Act (ACA) was expected to lessen the bad debt reported by hospitals by increasing the number of insured lives. Hospital managers understand that a certain percentage from the accounts receivables will end up being uncollectable; however, strategically planning for bad debt and estimating a more accurate allowance requires a specific level of strategic planning. Allowance for bad debt should not be a guessing game but should be a strategic planning process monitored closely. As such, this study examined if managers plan for and make strategic decisions for reported allowance for bad debt based on environmental factors such as residing in a Medicaid expansion state. The study was framed within the context of the Strategic Adaptation Theory.

The study analyzed data from 2012, 2014, and 2016 to examine the association between hospitals located in a Medicaid expansion and non-expansion states and their estimations for allowance for bad debt while considering external environmental factors. The study used both prospective and retrospective data. Prospective data were collected from hospital leaders willing to share demographic information about their hospital, how they plan for estimating the allowance for bad debt, and what factors contribute to their estimation process. Retrospective data were gathered from publicly available sources, Centers for Medicare and Medicaid Services (CMS) cost reports, American Hospital Association (AHA) Annual Survey, and the Health Resource Services Administration (HRSA) Area Health Resource File (AHRF). We found statistically significant findings for hospitals in states that did expand compared to hospitals in states that did not expand. On average, there was a 2.2% (p<0.01) decrease in percent for allowance for bad debt for those hospitals that resided in an expanded state. The findings suggest a difference between hospitals located in a Medicaid expansion and non-expansion states and their estimations for allowance for bad debt. The outcome of this study is intended to inform healthcare managers regarding the effect of Medicaid expansion on hospitals allowance for bad debt.