The Impact of Increasing Private Insurance Payment Rates and ACA Medicaid Expansion on Hospital Behaviors and Patient Experience

Objectives: The prices for hospital services paid by private sector payers are substantially higher than Medicare’s rates. In this three-paper dissertation, paper 1 examines how non-profit hospitals allocated the additional dollars collected from higher private sector price markups to fulfill their self-interests or patient benefits. Paper 2 examines if hospitals with higher private sector price markups delivered better self-reported patient experience. Paper 3 evaluates if hospitals responded to the Medicaid expansion by lowering their private sector payment rates or increasing their operating expense. Methods: This research uses hospital level data from RAND hospital cost reports and CMS HCAHPS survey over 2011 – 2018. Paper 1 and 2 use longitudinal fixed effects models to examine the association between hospital’s private sector to Medicare payment ratios (PMR) and their operating net income, administrative spending, patient-care cost, nurse staffing level, community benefit provision, and patient satisfaction over time. Paper 3 uses a difference-in-difference method and event study model to evaluate the impact of Medicaid expansion on hospital’s operating expense and private sector prices. Results: Paper 1 finds that average private sector prices were 61% higher than Medicare for non-profit hospitals. Hospitals with 10% higher PMR were associated with $154, $96, $109, and $22 higher operating net income, administrative spending, patient-care expense, and charity care cost per discharge equivalents, respectively. Paper 2 finds that 10% higher PMR was associated with 0.13% and 0.14% increase in patients giving their hospitals top ratings and “definite recommendations”, respectively. Paper 3 finds that Medicaid expansion had an insignificant impact on hospital’s operating expense and private sector prices, but weak evidence on increased patient-care spending and a small reduction on administrative spending. Conclusion and Policy Implications: Higher prices paid by private insurers were primarily spent on fulfilling hospital’s self-interests rather than patient benefits. Medicaid expansion did not reduce private sector payment rates but led to minor changes in hospital’s cost structure. Policymakers and private sector payers should consider these findings when designing policies and options to lower private sector hospital prices by addressing the efficiency of hospital’s resource allocation and value of healthcare payments