Hospital Survivability and Government Policies: The 2010 Affordable Care Act

This dissertation investigates the impact of the U.S. Affordable Care Act (ACA) of 2010 on hospital survivability. To this end, I study two policy changes in the ACA. The first is the Hospital Readmission Reduction Program (HRRP), which ties the Centers for Medicare & Medicaid Services (CMS) payments to hospital readmission rates. A hospital’s readmission rate thus becomes an important financial and healthcare delivery indicator. Hence, in the first project of this dissertation, I test the financial viability of hospitals based on readmission rates. Then, using Simar and Wilson’s two-stage data envelopment analysis (DEA), I test the impact of two dimensions of quality—experiential quality and clinical quality—on hospitals’ financial viability. Results indicate that hospitals that offer higher quality care are more efficient at achieving financial viability. Additionally, the results demonstrate that excelling in both dimensions has had additional benefits for hospitals. The second policy change explored is the ACA’s Medicaid coverage expansion. I examine its impact on hospital closures. This policy expands Medicaid coverage to all adults with incomes lower than 138% of the U.S. federal poverty level. However, based on constitutional arguments against the ACA, the U.S. Supreme Court in 2012 ruled that states could opt out of the mandate. The heterogeneous adoption by states enables researchers to conduct a natural experiment by providing a control group. Therefore, I adopt a difference-in-differences analysis framework with fixed effects using a Poisson regression to test whether the ACA-mandated Medicaid coverage expansion impacted hospital closures. Results show that the mandate reduced the number of hospital closures in states that complied with the mandate by 54% as compared to states that did not. Then,
I explore hospital-level operational drivers that contributed to the hospital closure crisis. Results demonstrate that the mandate increased patient revenue and perceived quality of care, while no evidence showed that the mandate affected the number of patient discharges, number of employees, and hospital operating expenses. Furthermore, my results suggest that Medicaid expansion increased hospital revenue not by increasing the number of patients, but rather by decreasing hospitals’ amount of uncompensated care.