Factors Associated with the Number of Substance Abuse Nonprofits in the U.S. States: Focusing on Medicaid Expansion, Certificate of Need, and Ownership

2.1 Nonprofit Substance Abuse Facilities Serving Underprivileged Communities

Overall, the number of substance abuse facilities increased from 13,771 in 2006 to 14,399 in 2016, as indicated in Table 1. However, a more high-resolution exploration of these data according to ownership shows that the number of nonprofit substance abuse facilities decreased by 449 while their for-profit counterparts increased by 1,294 between 2006 and 2016. In proportional terms, although 60 % of substance abuse treatment facilities were provided by nonprofit organizations in 2006, by 2016 this was down to 53 %. In addition, in 2016, nonprofit substance abuse facilities treated around 50 % of all patients, decreasing from 55.1 % in 2006. In sum, although nonprofit substance abuse facilities are still important treatment providers in terms of their prevalence and the number of patients they serve, their for-profit counterparts are becoming increasingly more prevalent and are providing services to a growing number of patients.

Table 2 shows the states with the most and fewest substance abuse facilities according to ownership in 2016. For example, California had 1,430 substance abuse facilities in 2016, Whereas Delaware and Vermont had fewer than 50. California exhibits the largest number of both nonprofit and for-profit facilities. Other states such as New York and Texas show interesting variations in the number of nonprofits versus for-profits providing substance abuse treatments. New York is ranked second in terms of the former but in terms of for-profits it does not rank in the top five. Texas was home to the fifth largest number of for-profits but with relatively few nonprofits.

Nonprofit substance abuse facilities are essential for those with substance abuse problems who live in low- and moderate-income communities. The proportion of patients who depends on their own private insurance rather than on Medicaid or other public programs is critical to substance abuse facilities' profitability and financial viability. Medicaid is a public program to pay for health services for economically disadvantaged people, typically the lowest reimbursement for substance abuse facilities. As indicated in Table 3, 70 % and 45 % of nonprofit and for-profit substance abuse facilities, respectively, receive Medicaid. In addition, nonprofit facilities are more likely to provide sliding fee scales according to salaries and treatment at no charge for clients who cannot pay, compared to for-profit facilities. Thus, nonprofit facilities tend to emphasize charitability rather than profitability, contributing to low- and moderate-income communities whereas for-profits pay more attention to profitability. Considering the role of nonprofit substance abuse facilities in serving low- and moderate-income communities and the increasing number of for-profits in this area, it is important to understand factors affecting changes in the number of nonprofit substance abuse facilities, and investigate how the factors influence for-profit facilities.

2.2 ACA and Increasing Demand for Substance Abuse Services

Before the ACA, many people with mental health and substance abuse disorders did not seek treatment due to lack of insurance or incomplete mental health coverage. Mental illness is more prevalent among lower income groups (Beronio et al. 2014), a population less likely to have had health insurance before the ACA. In addition, many people with substance abuse issues had difficulty obtaining insurance plans because “insurers in most states could deny or underwrite coverage based on these preexisting conditions” (Beronio et al. 2014, 411). Although the 2008 Mental Health Parity and Addiction Equity Act (Parity Act) required that health insurance companies provide coverage for mental health and substance abuse services comparable to the coverage they provide for medical and surgical services, this regulation applied only to plans that already included mental health or substance abuse disorder benefits and did not sufficiently address incomparable mental health services to others.

The ACA of 2010 enhanced coverage of substance abuse disorder services. It requires that all plans offered both inside and outside marketplaces cover mental health and substance abuse disorder services. This requirement is also applicable to benefits under Medicaid expansion (Beronio et al. 2014). In addition, the ACA further increased demand for substance abuse services by creating health insurance marketplaces and expanding Medicaid, which began being implemented in 2014. Health insurance marketplaces, established in all 50 states, help low- and moderate-income individuals obtain affordable health plans and services through federally subsidized premium and cost-sharing assistance programs (Congressional Research Service 2013). With this expansion of Medicaid, people who earn up to 138% of the federal poverty level (FPL) are eligible for the program. In relation to mental health and substance use disorder coverage, an estimated 32 million Americans benefit from the ACA for access to these services (Beronio, Po, Skopec, and Glied 2014). As of March 2016, more than 11 million Americans had obtained health insurance plans through the program (Kaiser Family Foundation 2016b). As of December 2016, an additional 14 million people had gained health insurance coverage through the ACA's Medicaid expansion (Kaiser Family Foundation 2016a).

The ACA will increase overall spending on substance use disorder treatment, possibly affecting the demand for and supply of services. As indicated in Table 4, it is anticipated that total spending on treatment will grow to $42 billion in 2020 from $24 billion in 2009. Medicaid spending on substance use disorder treatment has grown faster than the amount spent by any other payers' spending on the treatment and will account for 28 % of total substance use disorder spending in 2020, up from 21 % in 2009. By contrast, in 1986 the largest single source of spending on treatment emanated from private insurance, funding over 30 % of total substance use disorder spending; by 2009 this had dropped to the third largest source of spending, following Medicaid and other state and local government entities. The ACA decreased uninsured rates across the United States between 2014 and 2016, potentially leading to a surge in demand for health services (Spetz and Chapman 2015).

2.3 State Variation in Medicaid Expansion and Certificate of Need (CON)

Out of the two programs under the ACA that commenced in 2014, this research focuses on ACA Medicaid expansion. This is because although not all states have chosen to expand Medicaid, they all have a health insurance marketplace regardless of state-own or federally-facilitated ones. As of 2017, 31 states and the District of Columbia have expanded Medicaid, and 19 states have chosen not to do so. Empirical evidence suggests that residents in Medicaid-expansion states are more likely to have insurance, compared to those in no-expansion states (Courtemanche, Marton, Ukert, Yelowitz, and Zapata 2017; Kaestner, Garrett, Chen, and Gangopadhyaya 2017). Thus, state decisions about whether to expand Medicaid have affected access to affordable substance abuse services and possibly influenced the number of substance abuse nonprofits.

Moreover, health care providers' decisions to establish new facilities, or acquire or expand existing facilities can be affected by state regulation of health services, that is, Certificate of Need (CON). Extant legislation requires health care service providers to have permission from state agencies to enter a market or to expand an existing facility. The goals of CON are to facilitate coordinated planning of new services and facility construction, possibly affecting market entry of new nonhospital and hospital providers (Rahman et al. 2016). As of 2016, 34 states have some form of CON legislation while others do not (National Conference of State Legislatures 2016). Empirical findings report that market entry of new nonhospital and hospital providers is lower (higher) in states with (without) CON legislation (Harrington et al. 1997; Stratmann and Baker 2017). Thus, in the states with CON, the number of nonprofit substance abuse facilities will be influenced by state regulation of new health services.

State decisions about ACA Medicaid expansion permit researchers to test dominant theories frequently cited in the nonprofit literature to explain the existence of the nonprofit sector and nonprofit organizations. These dominant theories include market/government failure, contract failure, and voluntary failure. Market failure theory, which arises from the work of Weisbrod (1977), posits that nonprofit organizations develop and exist to provide services for which there is a demand but which the government does not provide because these services are demanded by a minority, rather than the majority. Somewhat similarly, the government failure theorists argue that “nonprofit organizations are gap-fillers; they exist as a result of private demands for public goods not offered by the public sector” (Anheier 2014, 203). This theory predicts more nonprofit organizations in a heterogeneous society (Grønbjerg and Paarlberg 2001) while individuals living in low-income communities will have less access to nonprofits (Allard 2008). Like market failure theory, contract failure theory also focuses on who is demanding the services; however, contract failure theory suggest that it is not the fact that only a minority demands the services but rather the fact that consumers of nonprofit services are often not the same as the purchaser. As a result, purchasers will prefer services provided by nonprofits over services provided by government or business because nonprofits are perceived to be more trustworthy. In other words, nonprofit organizations provide a proxy assurance to the purchaser that the goods or services meet adequate standards. Both market failure theory and contract failure theory—both of which have been in use since the early 1980s— suggest that the nonprofit sector fills a gap when market conditions make it such that the government does not provide certain services, yet there is still a demand for these services. The theory of voluntary failure—the most recently introduced of these three theories— suggests the opposite. In other words, government steps in when voluntary action proves insufficient, rather than the reverse. Thus, voluntary action would generally be the primary and dominant source of services, but due to factors such as philanthropic insufficiency, philanthropic particularism, and philanthropic paternalism, the voluntary sector may fail to fully address demand. In this case, the government must step in to fill resulting gaps (Salamon 1987; Salamon and Anheier 1998).

States with Medicaid expansion can be regarded as those in which the federal government financially supports substance abuse nonprofits to deliver substance abuse services, in line with voluntary failure theory. Beyond insuring more people, states with Medicaid expansion provide substance abuse nonprofits with a predictable federal funding source. To cover the costs associated with the relaxed eligibility criteria involved under Medicaid expansion, the federal government provided 100 % of funding to states from 2014 to 2016, which is now slowly reducing until it reaches 90 % in 2020. In states exhibiting Medicaid expansion, nonprofit substance abuse facilities can rely on predictable funding from the federal government for Medicaid patients. In contrast, substance abuse nonprofits in states without Medicaid expansion did not have this opportunity to receive the newly established federal funding, in line with government failure theory. Thus, state decisions for Medicaid expansion are related to additional governmental support for substance abuse facilities, whereas state decisions against the program are related to governmental inaction or failure to support substance abuse nonprofits.

This research focuses on investigating the effects of varying state interventions in the health policy domain, that is, state decisions about ACA Medicaid expansion and state operation of CON to regulate the supply of health services. The extant nonprofit literature shows that the number of nonprofits across states or counties is influenced by various factors including governmental interventions (e. g., Kim 2015; Lecy and Van Slyke 2013; Saxton and Benson 2005), median household income (e. g., Kim 2015; Saxton and Benson 2005), racial/ethnic diversity (e. g., Corbin 1999; Kim 2015), and market failure or problem severity (e. g., Corbin 1999). However, little scholarly attention has been paid to how nonprofits are influenced by state decisions regarding health policy. In the health policy domain, nonprofit or for-profit substance abuse facilities are under state regulation and are affected by state officials' decisions (e. g., Krinn, Karaca-Mandic, and Blewett 2015; Longest 2016; Noh and Krane 2016).

In addition, this study is interested in the interaction of Medicaid expansion and CON. There is a need to study the effects of bundled policy interventions on expected goals, because state governments have bundled a variety of policies rather than relying on a single intervention, yet this has hitherto been neglected in the literature (Eliadis, Hill, and Howlett 2005; Feiock, Stream, and Tavares 1998; Howard 2002; Howlett 2011; Kassekert and Feiock 2009). Further, prior studies have paid little attention to the role of CON in relation to other state decisions about health policy (e. g., Harrington et al. 1997; Rahman et al. 2016). State implementation of both Medicaid expansion and CON can exert contrasting influences on nonprofits in states: Medicaid expansion can increase demand for substance abuse services, whereas state operation of CON is related to regulating new services and facilities. Thus, this research explores how the number of substance abuse nonprofits is associated with Medicaid expansion, CON, and the interaction of both, along with other factors including governmental intervention, median household income, racial/ethnic diversity, and problem severity.

Moreover, this research examines various factors that influence the number of nonprofit versus for-profit substance abuse facilities, to which little scholarly attention has been paid. Prior studies have reported various factors that affect the number of nonprofits (Corbin 1999; Grønbjerg and Paarlberg 2001; Kim 2015; Lecy and Van Slyke 2013). However, it is unclear whether those factors also influence the number of for-profit entities. Considering their differential legal and market-imposed constraints (Goddeeris and Weisbrod 1998; Galaskiewicz, Mayorova, and Duckles 2013), it is reasonable to expect that the factors that affect the number of substance abuse facilities may differ between for-profits and nonprofits.

3.1 Data for Dependent Variables: Substance Abuse Facilities

The dependent variables are (1) the number of nonprofit substance abuse facilities per 10,000 state residents; and (2) the number of for-profit substance abuse facilities per 10,000 state residents between 2012 and 2016. These dependent variables allow us to study how state decisions about health policy influence levels of substance abuse facilities in states before and after the implementation of ACA Medicaid expansion, which began in 2014. The dependent variables are coded using data from the National Survey of Substance Abuse Treatment Services (N-SSATS) between 2012 and 2016 available from the Substance Abuse and Mental Health Services Administration.

3.2 Data for Explanatory Variables

Medicaid expansion. State decisions to expand Medicaid affect demand for substance abuse services, possibly influencing the number of substance abuse nonprofits. The Kaiser Family Foundation (2014) reported that residents of the 19 states that did not expand Medicaid are less likely to be insured than the residents of those states that did expand coverage. Medicaid eligibility levels in the 19 non-expansion states have remained low, negatively affecting demand for substance abuse services. Thus, states that expanded Medicaid are likely to have higher demand for substance abuse services, possibly resulting in a larger number of mental health nonprofits in those states. States that expanded Medicaid under the ACA between 2012 and 2016 are coded as 1, and 0 otherwise. All states are coded 0 in 2012 and 2013 because Medicaid expansion began in 2014.

Certificate of Need (CON). State regulation of new health services, that is, CON, can affect the number of nonprofit substance abuse facilities in a state (Rahman et al. 2016). In the states with CON, health care providers need to wait for state officials' approval after submitting documents to rationalize why the states need new facilities or new service lines. This process can delay or prevent the establishment of new substance abuse facilities. States with CON are coded as 1, and 0 otherwise. Data for this variable emanate from the National Conference of State Legislatures.

The interaction of Medicaid expansion and CON. In terms of state decisions about Medicaid expansion and state operation of CON, there are four groups of states: (1) states with both Medicaid expansion and CON; (2) states with Medicaid expansion only; (3) states with CON only; and (4) states with neither Medicaid expansion or CON. To capture state level variations in Medicaid expansion and CON, the interaction of these two variables is included. Medicaid expansion is related to increasing demand for substance abuse services and CON is legislation to regulate health service supply in a state. Considering their contrasting aspects, it is reasonable to expect that their interaction will negatively influence the number of substance abuse nonprofits.

3.3 Data for Control Variables

Government spending. Voluntary failure theory states that, to take advantage of nonprofits' experience and extensive networks, governments invite them to take part in the implementation of public policies, programs, and projects. Governments financially assist nonprofits that deliver public goods and services, which can affect the size of the nonprofit sector. Lecy and Van Slyke (2013) and Kim (2015) provide evidence that government funding positively affects nonprofit density, supporting voluntary failure theory. Accordingly, states with higher spending on substance abuse disorders will likely have more substance abuse nonprofits. To capture levels of government spending related to substance abuse facilities, the natural logarithm of state and local government spending on hospitals, health, and public welfare between 2012 and 2015 is included. For 2016, 2015 data were replicated due to data unavailability. The data capture state and local governments' own funds and federal grants allocated to state and local governments (e. g., Substance Abuse and Mental Health Block Grants) to address substance abuse disorder issues. Data for this variable are taken from the U.S. Census Federal, State, and Local Governments.

Median income. Median household income is an indicator of whether a state's economy enables residents to support nonprofit organizations. Prior research reports that affluent communities likely have more community support for nonprofits whereas low-income communities tend to have fewer resources for the nonprofit sector (Grønbjerg and Paarlberg 2001; Lecy and Van Slyke 2013). Lecy and Van Slyke (2013) reported that median income positively affected the number of human services–related nonprofits, whereas Kim (2015) found that median household income was negatively associated with the number of health-related nonprofits. Accordingly, states with higher median income will likely provide more resources for substance abuse nonprofits, resulting in more of these entities in those states. Median income is measured by the natural logarithm of median household income between 2012 and 2016 taken from the U.S. Census American Community Survey.

Racial diversity. According to government failure theory, people rely on nonprofit organizations in areas of government failure, positively affecting the number of nonprofits. In a heterogeneous society, more nonprofit organizations would be expected where demands for public goods are much diverse (Kingma 2003). Accordingly, a state with a more diverse racial/ethnic population is likely to exhibit more heterogeneous demand for substance abuse services, resulting in more substance abuse nonprofits. The reversed Herfindahl-Hirschman index is used to measure the level of racial/ethnic diversity between 2012 and 2015, and for 2016, data from 2015 were replicated due to data unavailability. This diversity index is calculated as one minus the sum of squares of the share of Non-Hispanic Whites, Hispanic or Latino, Black, and others in a state, and then the index is reversed for ease of interpretation. A higher score indicates more racial/ethnic diversity. Data for this variable derive from the U.S. Census American Community Survey.

Uninsured rates. Uninsured rates indicate whether problem severity affects the number of substance abuse nonprofits in states. High uninsured rates are related to governmental inaction or failure to address the inability of citizens to access affordable health coverage. In a state with a higher uninsured rate, residents will depend on substance abuse nonprofits for services, resulting in more of these entities being established and maintained. Data for uninsured rates come from the American Community Survey between 2012 and 2016.

Based on these variables, the analysis described in the next section tests the following hypotheses.

Hypothesis 1: A state that expanded Medicaid will be associated with a larger number of substance abuse nonprofits.

Hypothesis 2: A state with CON will be associated with a smaller number of substance abuse nonprofits.

Hypothesis 3: A state exhibiting both Medicaid expansion and CON will be associated with a smaller number of substance abuse nonprofits.

Hypothesis 4: A state with a larger government sector will be associated with a larger number of substance abuse nonprofits.

Hypothesis 5: A state with a higher median income will be associated with a larger number of substance abuse nonprofits.

Hypothesis 6: A state with a more diverse racial-ethnic population will be associated with a larger number of substance abuse nonprofits.

Hypothesis 7: A state with a higher uninsured rate will be associated with a larger number of substance abuse nonprofits.

After testing the effects of the factors of interests on substance abuse nonprofits, this research investigates whether the factors also influence the number of for-profit substance abuse facilities in states.