BBA impacts on hospital residents, finances, and Medicare subsidies

Concern over rapidly rising Medicare expenditures prompted Congress to pass the 1997 Balanced Budget Act (BBA) that included provisions reducing graduate medical education (GME) payments and capped the growth in residents for payment purposes. Using Medicare cost reports through 2001, we find that both actual and capped residents continued to grow post-BBA. While teaching hospital total margins declined, GME payment reductions of approximately 17 percent had minimal impact on revenue growth (-0.5 percent annually). Four years after BBA, residents remained a substantial line of business for nearly one-half of teaching hospitals with Medicare effective marginal subsidies exceeding resident stipends by nearly $50,000 on average. Coupled with an estimated replacement cost of over $100,000 per resident, it is not surprising that hospitals accepted nearly 4,000 residents beyond their allowable payment caps in just 4 years post-BBA.     

Impact of Medicare's prospective payment system on hospitals, skilled nursing facilities, and home health agencies: how the Balanced Budget Act of 1997 may have altered service patterns for Medicare providers

The prospective payment system is one of many changes in reimbursement that has affected the delivery of health care. Originally developed for the payment of inpatient hospital services, it has become a major factor in how all health insurance is reimbursed. The policy implications extend beyond the Medicare program and affect the entire health care delivery system. Initially implemented in 1982 for payments to hospitals, prospective payment system was extended to payments for skilled nursing facility and home health agency services by the Balanced Budget Act of 1997. The intent of the Balanced Budget Act was to bring into balance the federal budget through reductions in spending. The decisions that providers have made to mitigate the impact are a function of ownership type, organizational mission, and current level of Medicare participation. This article summarizes the findings of several initial studies on the Balanced Budget Act's impact and discusses how changes in Medicare reimbursement policy have influenced the delivery of health care for the general public and for Medicare beneficiaries.     

National health projections through 2008

Health spending is expected to resume its rise as a share of gross domestic product (GDP) in the projection period, following 6 years of near stability, increasing from 13.5 percent in 1997 to an estimated 16.2 percent by 2008. This implies an approximate doubling of health spending, from $1.1 trillion in 1997 to $2.2 trillion by 2008. We anticipate a reversal in recent patterns of growth in public and private health spending, with private spending expected to accelerate while Medicare spending slows in response to the implementation of the Balanced Budget Act (BBA) of 1997.     

Organizational and market factors associated with Medicare dependence in inpatient rehabilitation hospitals.

Rehabilitation hospitals in the USA have been excluded from the Medicare Prospective Payment System (PPS) system since 1982, and have received cost-based reimbursement. However, the 1997 Balanced Budget Act mandated a PPS for inpatient rehabilitation, to be implemented by the end of 2002. This study assesses rehabilitation hospitals' dependency on Medicare. Findings show that not-for-profit hospitals, facilities with fewer services, facilities with lower staffing levels, and hospitals with lower operating expenses and profits, have a higher proportion of their inpatient revenue coming from Medicare. These facilities may be vulnerable to the new PPS payment system.     

Vulnerability of rural hospitals to Medicare outpatient payment reform

Because the Balanced Budget Act (BBA) of 1997 requires implementation of a Medicare prospective payment system (PPS) for hospital outpatient services, the authors evaluated the potential impact of outpatient PPS on rural hospitals. Areas examined include: (1) How dependent are rural hospitals on outpatient revenue? (2) Are they more likely than urban hospitals to be vulnerable to payment reform? (3) What types of rural hospitals will be most vulnerable to reform? Using Medicare cost report data, the authors found that small size and government ownership are more common among rural than urban hospitals and are the most important determinants of vulnerability to payment reform.     

The relationship between the Balanced Budget Act (BBA) and hospital profitability

The Balanced Budget Act of 1997 (BBA) reduced the payment for fees for service providers and reduced the subsidy paid by the government for teaching hospitals. Since the passage of such cost containment measures, debates regarding their impact on hospitals, graduate medical education, and access to health care were raised. The need to examine the effect of such payment reduction on hospital profitability was widely ignored. We examined the relationship between the BBA and hospital profitability by using return on assets to measure profitability, by running an ordinary least squares regression for 1996 as pre-BBA and 1999 as post-BBA. We controlled for variables that were not included in previous literature, such as disproportionate share hospital status, critical access hospital status, and graduate medical education, measured by teaching hospitals to measure the effect of BBA cuts on teaching hospitals. Furthermore we incorporated several economic, financial, and utilization variables in the model. We used 1996 and 1999 data in our analysis to bridge potential effects of the BBA. To locate hospitals that changed ownership status we cross-matched the Medicare Cost Report data with the American Hospital Association Annual Survey. We found that overall hospital profitability declined as a result of the introduction of the BBA; however, small rural hospitals that converted to critical access status enjoyed improvement in financial status over the period of our study. Hospitals that converted to for-profit status did not improve in financial status, and showed a lower earning after the conversation. Our results show that the BBA had a negative effect on hospitals because of cuts in its reimbursement policy, except for critical access hospitals, which show improvement because of their exemption from the prospective payment system. Our study differs from others by using national comprehensive data for years that focus exclusively on the Balanced Budget Act period. We deliberately excluded any period that might be affected by the Balanced Budget Refinement Act (BBRA) of 1999, to clarify the severity of the BBA cut on hospital financial performance. Furthermore, because of the few studies that focused on the effect of the BBA on hospital profitability, this study is an important addition to the literature.     

A rural crossroad

The critical access hospital program is one of the few positive things for hospitals to come out of the 1997 Balanced Budget Act. It has meant salvation for the nearly 1,200 hospitals that have received the designation, and enables them to invest in facility upgrades, new equipment and additional staff. But a revamped Medicare managed care initiative threatens their payments and the Centers for Medicare & Medicaid Services and the Medicare Payment Advisory Program are taking a hard look at the program's costs. Some observers fear changes could be proposed that would weaken the CAH program.     

Hospital cost shifting revisited: new evidence from the balanced budget act of 1997

This paper analyzes hospital cost shifting using a natural experiment generated by the Balanced Budget Act (BBA) of 1997. I find evidence that urban hospitals were able to shift part of the burden of Medicare payment reduction onto private payers. However, the overall estimated degree of cost shifting is small and varies according to a hospital’s share of private patients. At hospitals where Medicare is a small payer relative to private insurers, up to 37% of BBA cuts was transferred to private payers through higher payments. In contrast, hospitals with greater reliance on Medicare were more financially distressed, as these hospitals saw large BBA cuts but were limited in their abilities to cost shift.     

The relationship between the Balanced Budget Act and length of stay for Medicare patients in US hospitals

Background  The Balanced Budget Act (BBA) of 1997 and Balanced Budget Refinement Act (BBRA) of 1999 led to deep financial cuts for hospitals and nursing homes. Objectives  We examine the effects of these acts on hospital length of stay (LOS) for Medicare recipients. Methods  Using data for all short-stay community hospitals in the country, we compared LOS for Medicare patients before and after the BBA/BBRA relative to known determinants of LOS, e.g., hospital ownership, region, beds, financial performance, and conversion/change in ownership type. Results  Hospital LOS was reduced as a result of the acts. Reductions were more apparent for larger urban hospitals that provided safety-net services. LOS varied slightly by hospital ownership. Conclusion  This study is among the first to evaluate the impact of BBA and BBRA on hospital services. These acts had a negative effect on the ability of hospitals to continue offering safety-net services and negatively affected LOS.      

The impact of the Balanced Budget Act of 1997 on Medicare in the USA: the fallout continues

Although the United States Congress has attempted to ameliorate some of the adverse impacts of the Balanced Budget Act through the 1999 Balanced Budget Refinement Act, the final results of the reforms to Medicare remain to be seen. This article provides an update and examines the impacts of the Balanced Budget Act on health providers and medical education. The authors also discuss the implications of these impacts for further policy adjustment.     

Long‐Term Impact of Medicare Payment Reductions on Patient Outcomes

Objective

To examine the long-term impact of Medicare payment reductions on patient outcomes for Medicare acute myocardial infarction (AMI) patients.

Data Sources

Analysis of secondary data compiled from 100 percent Medicare Provider Analysis and Review between 1995 and 2005, Medicare hospital cost reports, Inpatient Prospective Payment System Payment Impact Files, American Hospital Association annual surveys, InterStudy, Area Resource Files, and County Business Patterns.

Study Design

We used a natural experiment—the Balanced Budget Act (BBA) of 1997—as an instrument to predict cumulative Medicare revenue loss due solely to the BBA, and basing on the predicted loss categorized hospitals into small, moderate, or large payment-cut groups and followed Medicare AMI patient outcomes in these hospitals over an 11-year panel between 1995 and 2005.

Principal Findings

We found that while Medicare AMI mortality trends remained similar across hospitals between pre-BBA and initial-BBA periods, hospitals facing large payment cuts saw smaller improvement in mortality rates relative to that of hospitals facing small cuts in the post-BBA period. Part of the relatively higher AMI mortalities among large-cut hospitals might be related to reductions in staffing levels and operating costs, and a small part might be due to patient selection.

Conclusions

We found evidence that hospitals facing large Medicare payment cuts as a result of BBA of 1997 were associated with deteriorating patient outcomes in the long run. Medicare payment reductions may have an unintended consequence of widening the gap in quality across hospitals.     

The Balanced Budget Act of 1997 and Rural Training Supported by Medicare Graduate Medical Education Funds

The Balanced Budget Act of 1997 promised a number of changes in medical education to benefit rural communities. The changes suggested that physician training would be more available in rural communities, programs training physicians for work in rural communities would be better supported, and residency programs would be allowed to be separate from hospitals. The regulations developed by the Health Care Financing Administration to implement the act are reviewed in the context of these expectations. Limitations in the regulations indicate that rural communities will see little benefit from this legislation. This article is a commentary on the expectations and reality of the effects of the Balanced Budget Act of 1997 on rural training supported by Medicare.     

The Impact of the Balanced Budget Act on the Utilization and Financial Condition of Children's Services in California Hospitals

The objective of this study was to evaluate the utilization and financial performance of children's services after the Balanced Budget Act of 1997. The author analyzed these performance factors by hospital ownership, HMO penetration, and disproportionate share hospitals. Using data from California hospitals and conducting an analysis from 1997 to 1999, the author found that public hospitals were able to increase their profits from pediatric and neonatal intensive care services. The study also revealed that DSH hospitals located in high HMO penetration markets reduced their operating losses in nursery and pediatric services.     

Future financial viability of rural hospitals

Policymakers are concerned that some rural hospitals have suffered significant losses under the Balanced Budget Act (BBA) of 1997 and that access to inpatient and emergency care may be at risk. This article projects that the median total profit margin for rural hospitals will fall from 4 percent in 1997 to between 2.5 and 3.7 percent after the BBA, Balanced Budget Refinement Act (BBRA) of 1999, and Benefits Improvement and Protection Act (BIPA) of 2000 are fully implemented in 2004. The Critical Access Hospital (CAH) Program is expected to prevent reductions in inpatient and outpatient prospective payments from causing an increase in rural hospital closures.     

The impact of the Balanced Budget Act on the utilization and financial condition of children's services in California hospitals

The objective of this study was to evaluate the utilization and financial performance of children's services after the Balanced Budget Act of 1997. The author analyzed these performance factors by hospital ownership, HMO penetration, and disproportionate share hospitals. Using data from California hospitals and conducting an analysis from 1997 to 1999, the author found that public hospitals were able to increase their profits from pediatric and neonatal intensive care services. The study also revealed that DSH hospitals located in high HMO penetration markets reduced their operating losses in nursery and pediatric services.     

A profile of U.S. hospital mergers

According to Modern Healthcare's Annual Report on Mergers and Acquisitions the number of hospital mergers has declined significantly since the Balanced Budget Act of 1997. This study evaluated market characteristics, organizational factors and the operational performance of these hospitals prior to merger. We found that merged hospitals were more likely to be located in markets with higher per capital income and higher HMO penetration. Merged hospitals were larger in size and had greater clinical complexity as measured by increased services. Finally, we found that merged hospitals had higher occupancy rates, lower return on assets (ROA), and older facilities. From a managerial perspective, merged hospitals display many of the characteristics of an organization in financial distress. From a policy standpoint, the decline in hospital mergers subsequent to the Balanced Budget Act of 1997 may affect the long-term survivability of many U.S. hospitals.     

The Effect of Cuts in Medicare Reimbursement on Hospital Mortality

Objective. To determine if patients treated at hospitals under different levels of financial strain from the Balanced Budget Act (BBA) of 1997 had differential changes in 30-day mortality, and whether vulnerable patient populations such as the uninsured were disproportionately affected.
Data Source. Hospital discharge data from all general acute care hospitals in Pennsylvania from 1997 to 2001.
Study Design. A multivariate regression analysis was performed retrospectively on 30-day mortality rates, using hospital discharge data, hospital financial data, and death certificate information from Pennsylvania.
Data Collection. We used 370,017 hospital episodes with one of four conditions identified by the Agency for Healthcare Research and Quality as inpatient quality indicators were extracted.
Principal Findings. The average magnitude of Medicare payment reduction on overall net revenues was estimated at 1.8 percent for hospitals with low BBA impact and 3.6 percent for hospitals with a high impact in 1998, worsening to 2 and 4.8 percent, respectively, by 2001. Operating margins decreased significantly over the time period for all hospitals ( p <.05). While unadjusted mortality rates demonstrated a disproportionate rise in mortality for patients from high impact hospitals from 1997 to 2000, adjusted analyses show no consistent, significant difference in the rate of change in mortality between high-impact and low-impact hospitals ( p =.04–.94). Similarly, uninsured patients did not experience greater increases in mortality in high-impact hospitals relative to low-impact hospitals.
Conclusions. An analysis of hospitalizations in the Commonwealth of Pennsylvania did not find an adverse impact of increased financial strain from the BBA on patient mortality either among all patients or among the uninsured.     

Performance of U.S. Teaching Hospitals: A Panel Analysis of Cost Inefficiency

This research summarizes an analysis of the impact of environment pressures on hospital inefficiency during the period 1990-1999. The panel design included 616 hospitals. Of these, 211 were academic medical centers and 415 were hospitals with smaller teaching programs. The primary sources of data were the American Hospital Association's Annual Survey of Hospitals and Medicare Cost Reports. Hospital inefficiency was estimated by a regression technique called stochastic frontier analysis. This technique estimates a "best practice cost frontier" for each hospital that is based on the hospital's outputs and input prices. The cost efficiency of each hospital was defined as the ratio of the stochastic frontier total costs to observed total costs. Average inefficiency declined from 14.35% in 1990 to 11.42% in 1998. It increased to 11.78% in 1999. Decreases in inefficiency were associated with the HMO penetration rate and time. Increases in inefficiency were associated with for-profit ownership status and Medicare share of admissions. The implementation of the provisions of the Balanced Budget Act of 1997 was followed by a small decrease in average hospital inefficiency. Analysis found that the SFA results were moderately sensitive to the specification of the teaching output variable. Thus, although the SFA technique can be useful for detecting differences in inefficiency between groups of hospitals (i.e., those with high versus those with low Medicare shares or for-profit versus not-for-profit hospitals), its relatively low precision indicates it should not be used for exact estimates of the magnitude of differences associated with inefficiency-effects variables.     

Has the Medicare Prospective Payment System Led to Increased Nursing Home Efficiency?

RESEARCH OBJECTIVE: To assess the impact of recent Medicare prospective payment system (PPS) changes on efficiency in skilled nursing homes. DATA SOURCE/STUDY SETTING: Medicare Cost Reports (MCR), On-line Survey Certification and Reporting System (OSCAR), Area Resource Files (ARF), a Centers for Medicare and Medicaid Services (CMS) hospital wage index website, a Consumer Price Index (CPI) database, and a survey of state Medicaid reimbursement rates. The sample was 8,361 nursing homes in the Medicare Cost Report databases from the years 1997 to 2003. STUDY DESIGN: Data-envelopment analyses (DEA) calculated efficiency scores for three separate DEA models: unadjusted, acuity-adjusted, and acuity-and-quality-adjusted efficiency. The efficiency scores from these models were regressed on the Medicare PPS changes (the Balanced Budget Act [BBA], the Balanced Budget Refinement Act [BBRA] and the Benefits Improvement and Protection Act) and other organizational and market explanatory variables using a panel-data truncated regression. PRINCIPAL FINDINGS: Mean values for all efficiency measures decreased over time, the acuity-quality-adjusted efficiency measures decreasing the most. All policy variables were significantly negatively related to all efficiency measures. Higher nurse staffing was negatively related to efficiency in all but the acuity-quality-adjusted model. Other explanatory variables varied in their relationships to the efficiency variables. CONCLUSIONS: The results suggest that the reimbursement policy changes had a significantly negative impact on efficiency. Higher nurse staffing contributed to lower efficiency only when efficiency was not adjusted for quality. Various organizational and market factors also played significant roles in all efficiency models.     

Outreach and enrollment challenges: increasing participation in Child Health Plus in Onondaga County, New York.

Title XXI of the Social Security Act, the State Children's Health Insurance Program (CHIP), was signed into law as part of the Balanced Budget Agreement in August 1997. The program provides $24 billion to states over a five-year period to provide health insurance to uninsured children in low-wage, working families with incomes too high to qualify for Medicaid and too low to afford private coverage. Based on interviews with participating insurers in Fall 1998, total enrollment of children in Child Health Plus in Onondaga County, New York is approximately 5,250. However, there are still approximately 10,000 uninsured and potentially eligible children in Onondaga County. In order to ensure the success of Child Health Plus and enroll these uninsured children, the State and County governments, communities, and plans participating in the program must be committed to effective outreach and ease of enrollment.