Over the past four decades, American hospitals have gradually transitioned from public to private hands. The share of hospitals that are owned and operated by a government body — as opposed to a private entity, either a for-profit or not-for-profit organization — decreased by 42 percent from 1983 to 2019.
This trend has had dire consequences for the poorer patients who seek care in these hospitals. When private companies take over public hospitals, low-income Medicaid patients lose access to health care, according to new research on this longstanding but unanalyzed trend in American health care.
A new National Bureau of Economic Research working paper by academics from Stanford, Michigan State, and Penn reviewed the consequences of privatizing 258 hospitals from 2000 to 2018 that they could quantify using national data. (Since there were just over 1,000 public hospitals in 1999, this means that a quarter of American public hospitals were privatized during the period they studied.)
These researchers found that after a private company takes over a previously government-controlled hospital, the hospital becomes more profitable. As a general hospital, these facilities lost an average of about $335 per patient. As a private hospital, they earned about $740 per patient.
In an ideal world, hospitals could operate more efficiently, and therefore more profitably, without sacrificing access to health care. The researchers found that hospitals achieve greater profitability in part by spending less on administrative and support staff rather than on people directly involved in patient care. There was no appreciable reduction in nursing staff, for example, after transfer of control.
But the other way in which these hospitals have increased their profitability is more troubling. Hospitals taken over by private companies saw an 8.4 percent decrease in overall patient volume, in part as hospitals reduced capacity in a possible effort to improve efficiency.
Admissions to Medicare decreased by only 5 percent, a change that is not statistically significant, according to the researchers. But Medicaid admissions fell 15 percent, as did the rate of “other” admissions (which includes uninsured and private insurance, the former being another unprofitable line of business for hospitals). Although Medicaid patients make up 20 percent of the patient volume at these hospitals, they account for 30 percent of the decline in admissions after privatization.
“These patterns are consistent with private owners wanting to reduce the share of Medicaid and other patients in their hospitals in order to increase average income per patient,” the paper’s authors write.
I asked the authors what hospitals that discharge Medicaid patients might look like in practice. They could only speculate, because that was outside the scope of the paper, but Mark Duggan of Stanford told me that perhaps the most obvious way would be to refuse to renew their Medicaid contracts, cutting the hospital out of the network of sick Medicaid providers. Atul Gupta of Pennsylvania also said they could cut off certain lines of service, such as psychiatric care, that Medicaid patients frequently use. or they can refuse to accept Medicaid patients; While they are obligated to stabilize a patient’s condition in the emergency room, they have more discretion over which patients should actually be admitted to the hospital.
In theory, fewer Medicaid patients could simply mean that there are fewer unnecessary hospitalizations. But the researchers tested this idea by examining what happened to patient volumes across an entire region when the hospital was privatized. They found that patients with health or private insurance were being accommodated by nearby hospitals — but Medicaid admissions declined across the region.
In other words, when newly privatized hospitals cut admissions, patients with more lucrative health insurance were selected by other facilities, which may indicate that they still had clinical needs which led to a higher market to meet them then. But Medicaid patients, whose insurance isn’t as generous, have simply lost access to health care.
“An overall decrease in Medicaid’s size potentially harms its effectiveness as a social insurance program that guarantees access to Medicare for vulnerable low-income beneficiaries,” the researchers wrote. “So privatization emerges as a channel that may limit access to care by Medicaid beneficiaries.”
The consequences of hospital privatization for Medicaid patients have taken on even greater significance given recent expansions in Medicaid eligibility. Medicaid has now grown to be the largest health insurance company in the United States, covering more than 90 million Americans (including the related CHIP program that covers children). But, as the authors note in their analysis, this rise in enrollment was not matched by a commensurate proportion Increase in hospital admissions by Medicaid patients. Their findings may help explain why.
Medicaid is vital to America’s safety net, providing no-cost insurance coverage to low-income Americans. It also has its problems, as lower reimbursement rates result in fewer doctors accepting Medicaid patients. One of the more interesting papers from last year found that supposedly “right” physician networks for people enrolled in Medicaid managed care plans (overseen by private companies) were not as strong as they first appeared.
Giving people Medicaid coverage is the first step to making sure vulnerable Americans get the health care they need — but it’s only the first step. They need to find doctors and hospitals that will accept their insurance and treat them. It’s been a long struggle because of the program’s low reimbursement rates, which are much lower than medical or private insurance.
And according to this new research, the trend towards privatizing hospitals is making the problem worse.