The Impact of Financial changes on Hospital Quality of Care: Evidence from State Medicaid Expansion

Abstract

Understanding the relationship between hospital financial condition and quality of care is integral for policy makers and administrators as changes in financial condition can have drastic impacts on quality of care, mortality, and quality of life. Using previously established research surrounding Medicaid expansion and hospital finances, I use the expansion of Medicaid as natural experiment to test whether changes in financial conditions impacts hospital quality of care. Using publicly available hospital quality data, I examine if hospitals in states that expanded Medicaid (and those shown to be more financially better off) experience greater improvements in quality of care. A difference in differences regression approach is utilized that studies pre and post hospital trends in quality to determine the impact on quality of care. I extend this further to examine rural hospitals since they were impacted at a greater financial magnitude by expansion to see if there is a possible dose relationship. My findings show that rural hospitals are impacted differently, however, the financial shock brought about by Medicaid expansion is not likely exogenous. That is, hospitals in expansion and non-expansion states have inherently different characteristics (observed and unobserved) that are in part correlated with the expansion. This results in inconsistent estimated impacts of Medicaid expansion across the two groups. While a concrete relationship between hospital financial performance and quality of care is not found, this research does contribute to the literature by using a natural experiment to disentangle the endogenous relationship between hospital financial performance and quality of care. This research also serves as a lesson that rigorous testing of natural experiments are needed, and that future research examining the impacts of Medicaid expansion on hospital quality should be approached cautiously.