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A Leak in the Lifeboat: The effect of Medicaid managed care on the vitality of safety-net hospitals


  • Lindsey Woodworth

    () (University of South Carolina)


States are increasingly adopting Medicaid managed care in efforts to address budgetary concerns. The intent is that by releasing Medicaid oversight to private organizations, competition will drive down healthcare expenditures so that savings may be passed to the state. Yet there are concerns that this competitive solution to cost savings might compromise safety-net hospitals. Managed care organizations cut costs by restricting the providers that enrollees are allowed to see. If movement in Medicaid patients disrupts safety-net hospitals’ casemix, this could affect their ability to cross-subsidize care. This study estimates the impact of Medicaid managed care on safety-net hospitals by exploiting a Florida pilot program that required Medicaid recipients in five counties to enroll in managed care. The results suggest this mandate led to a small reduction in safety-net hospitals’ average ratio of payment-to-cost. There is also some evidence that the effect on safety-net hospitals was disproportionate. This disproportionality was such that hospitals nearest the margin were pushed the furthest towards the edge.

Suggested Citation

  • Lindsey Woodworth, 2016. "A Leak in the Lifeboat: The effect of Medicaid managed care on the vitality of safety-net hospitals," Journal of Regulatory Economics, Springer, vol. 50(3), pages 251-270, December.
  • Handle: RePEc:kap:regeco:v:50:y:2016:i:3:d:10.1007_s11149-016-9312-8
    DOI: 10.1007/s11149-016-9312-8

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    References listed on IDEAS

    1. Currie, Janet & Fahr, John, 2005. "Medicaid managed care: effects on children's Medicaid coverage and utilization," Journal of Public Economics, Elsevier, vol. 89(1), pages 85-108, January.
    2. Bradley Herring & E. Kathleen Adams, 2011. "Using HMOs to serve the Medicaid population: what are the effects on utilization and does the type of HMO matter?," Health Economics, John Wiley & Sons, Ltd., vol. 20(4), pages 446-460, April.
    3. Anna Aizer & Janet Currie & Enrico Moretti, 2007. "Does Managed Care Hurt Health? Evidence from Medicaid Mothers," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 385-399, August.
    4. Waitzkin, H. & Williams, R.L. & Bock, J.A. & McCloskey, J. & Willging, C. & Wagner, W., 2002. "Safety-net institutions buffer the impact of medicaid managed care: A multi-method assessment in a rural state," American Journal of Public Health, American Public Health Association, vol. 92(4), pages 598-610.
    5. Mark Duggan & Tamara Hayford, 2013. "Has the Shift to Managed Care Reduced Medicaid Expenditures? Evidence from State and Local‐Level Mandates," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 32(3), pages 505-535, June.
    6. Duggan, Mark, 2004. "Does contracting out increase the efficiency of government programs? Evidence from Medicaid HMOs," Journal of Public Economics, Elsevier, vol. 88(12), pages 2549-2572, December.
    7. David M. Cutler & Mark McClellan & Joseph P. Newhouse, 2000. "How Does Managed Care Do It?," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 526-548, Autumn.
    8. McClellan, Mark & Cutler, David & Newhous, Joseph P., 2000. "How Does Managed Care Do It?," Scholarly Articles 2643884, Harvard University Department of Economics.
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    More about this item


    Managed care; Medicaid; Safety-net hospitals;

    JEL classification:

    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • I1 - Health, Education, and Welfare - - Health


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