Do Medicaid Provider Assessments Affect Geographic Access to Hospital Obstetric Care?

• In Event: Provider Supply and Assessment

Abstract

Medicaid provider assessments are an important yet controversial revenue source for state Medicaid programs. States commonly use them to fund supplemental payments that return assessed taxes—along with federal matching funds—to the taxed provider class roughly proportional to the Medicaid population share each facility serves. Because the taxes are leveraged to draw down federal matching dollars, facilities on average receive more back in supplemental payments than they pay in taxes, producing a net subsidy that disproportionately benefits Medicaid-intensive service lines like obstetrics. Driven largely by financial strain, the number of U.S. hospital obstetric departments has steadily declined for decades.

This study examines whether provider assessments and their associated supplemental payments improve geographic access to obstetric care by improving the financial viability of obstetric service lines—reducing closures, encouraging openings, or retaining services that would otherwise be dropped. Using modern staggered difference-in-differences estimators, I estimate the effect of simulated net subsidies on average driving times to the nearest hospital with obstetric services across 28 states and Washington D.C. that adopted hospital provider assessments between 1998 and 2022. For comparison, I also estimate the effect of simulated net subsidies for overall hospital services on driving times to the nearest hospital of any type. Net subsidies are simulated by combining pre-treatment hospital and state characteristics with tax implementation dates and rates compiled from state legislative documentation. Drive times are computed from census tract population centroids to hospital locations from the Centers for Medicare & Medicaid Services, then aggregated to the county level with fixed weights so that variation reflects only hospital openings, closures, and service-line changes.

Preliminary results show that simulated net subsidies for common obstetric services significantly reduce average travel time to a hospital with obstetric services, suggesting these assessment-funded payments effectively support the supply of care in this Medicaid-intensive specialty. By contrast, simulated net subsidies for overall hospital services are not associated with changes in distance to any hospital—consistent with expectations that overall hospital supply is relatively inelastic, and that modest overall subsidies are insufficient to prevent whole-hospital closures or induce new market entry. These findings inform ongoing federal debates over Medicaid provider assessments by quantifying their role in sustaining geographic access to essential, Medicaid-reliant service lines.

Author

• Mitchell McFarlane, Syracuse University
  Presenting Author