Has Medicare Been a ‘Bad Deal’ for Rural Hospitals?

Understanding the links between Medicare involvement and financial performance in rural hospitals is important for evaluating reimbursement policy under Medicare's prospective payment system (PPS). While simple comparisons between urban and rural hospitals suggest that the latter have lower PPS profit margins on average, there is little multivariate evidence on how Medicare involvement affects financial performance in rural hospitals and whether this relationship differs between rural and urban hospitals. Existing multivariate evidence suggests that Medicare involvement improves PPS profits in both rural and urban hospitals after controlling for other hospital- and market-specific factors. By contrast, the present analysis considers the relationship between Medicare involvement and broader measures of profitability than PPS profits. This provides insight into whether Medicare reimbursement is adequate relative to other forms of third-party payment. The results indicate that Medicare involvement has a markedly different effect on the profitability of rural versus urban hospitals. Greater Medicare involvement is associated with lower patient care profitability in rural hospitals but has a strong positive and significant effect on both patient care and overall (i.e., patient and nonpatient) profitability in urban ones. Medicare involvement is not significantly related to overall profitability in rural hospitals, however, suggesting that these hospitals may be able to mitigate patient care revenue shortfalls from greater Medicare involvement by increasing their nonpatient care revenue sources.     

Rural Implications of Medicare''s Post-Acute-Care Transfer Payment Policy

CONTEXT: Under the Medicare post-acute-care (PAC) transfer policy, acute-care hospitals are reimbursed under a per-diem formula whenever beneficiaries are discharged from selected diagnosis-related groups (DRGs) to a skilled nursing facility, home health care, or a prospective payment system (PPS)-excluded facility. Total per-diem payments are below the full DRG payment only when the patient's length of stay (LOS) is short relative to the geometric mean LOS for the DRG; otherwise, the full DRG payment is received. This policy originally applied to 10 DRGs beginning in fiscal year 1999 and was expanded to additional DRGs in FY2004. The Secretary may include other DRGs and types of PAC settings in future expansions. PURPOSE: This article examines how the initial policy change affected rural and urban hospitals and investigates the likely impact of the FY2004 expansion and other possible future expansions. METHODS: The authors used 1998-2001 Medicare Provider Analysis and Review (MEDPAR) data to investigate changes in hospital discharge patterns after the original policy was implemented, compute the change in Medicare revenue resulting from the payment change, and simulate the expected revenue reductions under expansions to additional DRGs and swing-bed discharges. FINDINGS: Neither rural nor urban hospitals appear to have made a sustained change in their discharge behavior so as to limit their exposure to the transfer policy. Financial impacts from the initial policy were similar in relative terms for both types of hospitals and would be expected to be fairly similar for an expansion to additional DRGs. On average, including swing-bed discharges in the transfer policy would have a very small financial impact on small rural hospitals; only hospitals that make extensive use of swing beds after a short inpatient stay might expect large declines in total Medicare revenue. CONCLUSION: Rural hospitals are not disproportionately harmed by the PAC transfer policy. An expanded policy may even benefit rural hospitals by recognizing their lower use of post-acute-care and readjusting DRG weights so that they are paid more appropriately when providing the full course of inpatient care.     

The Financial Performance of Rural Hospitals and Implications for Elimination of the Critical Access Hospital Program

Purpose: To compare the financial performance of rural hospitals with Medicare payment provisions to those paid under prospective payment and to estimate the financial consequences of elimination of the Critical Access Hospital (CAH) program. Methods: Financial data for 2004‐2010 were collected from the Healthcare Cost Reporting Information System (HCRIS) for rural hospitals. HCRIS data were used to calculate measures of the profitability, liquidity, capital structure, and financial strength of rural hospitals. Linear mixed models accounted for the method of Medicare reimbursement, time trends, hospital, and market characteristics. Simulations were used to estimate profitability of CAHs if they reverted to prospective payment. Findings: CAHs generally had lower unadjusted financial performance than other types of rural hospitals, but after adjustment for hospital characteristics, CAHs had generally higher financial performance. Conclusions: Special payment provisions by Medicare to rural hospitals are important determinants of financial performance. In particular, the financial condition of CAHs would be worse if they were paid under prospective payment.     

Medicare prospective payment without separate urban and rural rates

The elimination of urban-rural differences in the Medicare prospective payment system (PPS) standard rates implies a need to re-examine all the PPS payment adjustments. Refinements for case mix, outliers, and the wage index can make a significant contribution to avoiding payment disparities in a single-rate system. However, changes in the adjustments for teaching and disproportionate-share (DSH) hospitals are also needed. The typically urban location of these hospitals makes it difficult to balance PPS payments and costs among major groups of urban and rural hospitals without some form of higher payment for all hospitals located in large urban areas.     

Medicare's policy to limit payment for hospital-acquired conditions: the impact on safety net providers

In 2008, Medicare implemented a policy limiting reimbursement to hospitals for treating avoidable hospital-acquired conditions (HACs). Although the policy will expand nationally to Medicaid programs in 2011, little is known about the impact on safety-net hospitals. Using data from the 2006 American Hospital Association Annual Survey and MEDPAR, we compared the incidence of cases that met the HACs criteria at safety-net and non-safety-net hospitals. We found that safety-net hospitals had an average of 65.5 HACs per 1,000 Medicare discharges compared with 57.6 at non-safety-net hospitals. Hospitals in the lowest quintile for financial margins had higher rates of HACs on average than other hospitals. Safety-net hospitals and hospitals with the lowest financial margins may be more likely than others to be affected by policies that reduce payment for HACs.     

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.     

Snapshot of hospital quality reporting and pay-for-performance under Medicare

This paper examines the impact that Medicare pay-for-performance (P4P) might have upon hospital payment. It uses the initial two quarters of a national quality database to model financial gains or losses using the Premier Hospital Quality Incentive Demonstration rules, as well as the P4P approach recommended by the Medicare Payment Advisory Commission (MedPAC). Findings reveal variation among all types of hospitals and across all measures within each of the three conditions studied: heart attack, heart failure, and pneumonia. Initially, hospitals' financial gains and losses likely will be marginal using the Premier demonstration payment rules and somewhat larger under the MedPAC recommendations as modeled.     

The financial impact of interim and prospective payment systems on home health providers in rural communities

The objective of the study was to examine the financial impact of the interim payment system and prospective payment system (PPS) on home health agencies (HHAs) in rural communities. Data sources used included a survey of administrators in all rural HHAs in Pennsylvania and financial and utilization data provided by 10 rural HHAs in Northwest Pennsylvania. The results of survey showed that, under the PPS, 40% of the HHAs reported financial vulnerability and 24% expressed concern that the fiscal uncertainties arising from the PPS threatened their continued operation. Two prospective analyses were conducted to examine how HHAs would be further affected by payment rate changes implemented in October 2002 and April 2003. The Medicare margin in rural Pennsylvania was 23.3% during the period from October 2000 to June 2002. This margin was slightly higher than the free-standing home health Medicare margin (21.6%) reported in analyses conducted by the Medicare Payment Advisory Commission (MedPac). However, this Medicare margin did not include hospital-based HHAs. The payment rate changes implemented in 2002 and 2003 would increase the proportion of care episodes that incur financial losses, assuming service provision remains constant. As of April 2003, the proportion of all episodes with loss would rise to 46.9%, the proportion of low-utilization payment adjustment (LUPA) episodes with loss would rise to 91.1%, and the proportion of non-LUPA episodes with loss would rise to 40.2%. New payment mechanisms are profoundly affecting the finances of rural HHAs and the use of home health services by Medicare beneficiaries.     

Solving the Medicare equation. Are margins the most effective way to measure a hospital's fiscal health?

Citing soaring hospital profit margins, lawmakers froze Medicare hospital reimbursements for this fiscal year, the first such freeze in history. Critics counter that profit margins don't paint a fair picture of hospitals' financial condition. They complain that recent rosy forecasts by congressional Medicare advisory commissions mask the fact that many hospitals lie on the brink of financial ruin.     

Factors Associated with Iowa Rural Hospitals' Decision to Convert to Critical Access Hospital Status

ABSTRACT:  Context: The Balanced Budget Act (BBA) of 1997 allowed some rural hospitals meeting certain requirements to convert to Critical Access Hospitals (CAHs) and changed their Medicare reimbursement from prospective to cost-based. Some subsequent CAH-related laws reduced restrictions and increased payments, and the number of CAHs grew rapidly. Purpose: To examine factors related to hospitals' decisions to convert and time to CAH conversion. Methods: Eighty-nine rural hospitals in Iowa were characterized and observed from 1998 to 2005. Cox proportional hazards models were used to identify the determinants of time to CAH conversion. Findings: T-test and one-covariate Cox regression indicated that, in 1998, Iowa rural hospitals with more staffed beds, discharges, and acute inpatient days, higher operating margin, lower skilled swing bed days relative to acute days, and located in relatively high density counties were more likely to convert later or not convert before 2006. Multiple Cox regression with baseline covariates indicated that lower number of discharges and average length of stay (ALOS) were significant after controlling all other covariates. Conclusion: Iowa rural hospitals' decisions regarding CAH conversion were influenced by hospital size, financial condition, skilled swing bed days relative to acute days, length of stay, proportion of Medicare acute days, and geographic factors. Although financial concerns are often cited in surveys as the main reason for conversion, lower number of discharges and ALOS are the most prominent factors affecting rural hospitals' decision on when to convert.     

A qualitative assessment of the Medicare prospective payment system

This paper employs commonly accepted criteria to evaluate the potential outcomes of the Medicare pricing mechanism. The analysis suggests that the recent revisions in the Medicare payment system have less potential to contain increases in total hospital costs than those embodied in all-payer systems. In addition, this paper also suggests that the pricing mechanism will jeopardize the financial viability of many hospitals while exacerbating inequities that emanate from differential pricing policies. Finally, when viewed from the perspective of insured beneficiaries, it is reasonable to expect that the payment mechanism will reduce not only access to inpatient care but also the use of service once admitted.     

Getting the price right: Medicare payment rates for cardiovascular services

Specialized, physician-owned cardiac hospitals have grown rapidly. Physicians have also expanded their capability to provide cardiovascular diagnostic services in their offices. In this paper we consider evidence of errors in Medicare's prices for hospital care and physician services and discuss ways to improve the accuracy of those prices. We find that recent proposals to change the inpatient prospective payment system would help dampen hospitals' financial incentives to favor some kinds of patients and related investments. For the physician fee schedule, we suggest that the Centers for Medicare and Medicaid Services (CMS) review the accuracy of prices for high-growth diagnostic services.     

Are rural referral centers as costly as urban hospitals?

This article evaluates the claim that rural referral centers (RRCs), identified by HCFA criteria for special treatment under Medicare's prospective payment system, have average costs similar to urban hospitals. Multivariate analysis led us to conclude that RRC Medicare costs were 13 percent higher than those of other rural hospitals in 1984, holding constant Medicare case mix, teaching activity, and relative wages. However, RRCs were 9 percent ($200) less costly per case than urban hospitals. Outliers explained most of the cost difference between RRCs and urban hospitals, while transfers were more important in explaining differences between RRCs and other rural hospitals. Given that bed size alone explained all of the RRC-other rural cost difference, paying RRCs the urban rate results in an indirect way of paying them based on bed size. It also gives them an average excess of payment over Medicare cost well above the national rural and urban average.     

贫困县医院的医疗服务和收支分析

为了研究贫困县的医疗保健制度、县医院的地位、医疗费用结构等，对东兰、旬邑县医院的财务和统计资料及医疗服务的提供和费用结构情况等进行了调研。结果表明，县医院在农村医疗工作中发挥着重要作用；在医院收入结构中，药品所占比重最高，医疗收入其次，财政拨款所占比重最低且数额逐年下降，不足以支付医院人员的劳务费；在医院支出中，药品也占据了最大份额，其次为劳务支出；医院经营补偿机制的不合理，促使医院追求次均费用，这一方面加重了贫困地区农民的负担，另一方面也使医院忽视了基本医疗服务的提供，降低了服务的质量与效果。     

Deriving a risk-adjustment formula for hospital financing: integrating the impact of socio-economic status on length of stay

The imperfect risk adjustment of prospective payment for hospitals may have dramatic consequences on equity. If the hospital is able to distinguish subgroups of patients with different expected costs within a group for which the risk-adjusted payment per admission is the same, it is likely to select the most profitable cases and deny care to the others. Meanwhile, hospitals refusing to practice patients' selection may experience solvency problems. In the long term, either those hospitals fail and access to care is at risk, or they decrease the quality of treatments and access to quality is at risk. In Belgium, since 1995, a prospective payment per case has replaced the traditional per diem payments for non-medical expenditures. A fixed number of days are paid to each admission, based on the patient's characteristics, namely diagnosis, age and geriatric profile. In this paper, we examine the imperfect risk adjustment related to the non-inclusion of socio-economic factors in the hospital financing formula. Using data from 61 Belgian hospitals from 1995, we observe that socio-economic status, which is currently not accounted for as risk adjuster, has a significant impact on length of stay (LOS). We estimate that patients in the upper-income categories, patients with a self-employed status and patients with an employee status are beneficial for hospitals' financial results, due to their shorter stays. On the contrary, the non-active, the low-income patients and patients benefiting from an insurance preferential regime represent, on average, a financial loss for hospitals. Finally, we find that financial results under the current financing scheme are biased due to the non-inclusion of SES risk-adjustors. Hospitals with the most beneficial social case-mix are shown to experience a shift from a positive to a negative financial outcome when SES risk adjustors are included, while the reverse is observed for hospitals with the worst social case-mix.     

Financial trends for urban Catholic hospitals

To identify some of the reasons for the declining financial health of hospitals in large urban areas, staff from the Catholic Health Association's Department of Research and Information gathered data on such factors as average total profit margins, Medicare PPS margins, payer mix, and deductions from revenue between 1982 and 1989. In addition, the study tracked such indicators as occupancy, admissions, average payment period, and days in accounts receivable. Location and local community context were also studied. Based on the data, the study classified 28 of the 125 Catholic hospitals in large urban areas as "consistently sound," another 27 as "adversely affected," and 14 as "losing ground." The study compared these groups to one another, as well as to a group of nine Catholic hospitals from large urban areas that had closed by 1988. The study revealed that, despite differences in financial performance, consistently sound and adversely affected hospitals exhibited a number of similarities. Over the period covered, for example, the two groups had similar occupancy and received similar percentages of gross patient revenue from Medicare patients, third-party payers, and self-paying patients. Adversely affected hospitals contributed a significantly greater proportion of their resources to care for the poor. Consistently sound hospitals, on the other hand, had significantly fewer families below the poverty line, lower unemployment, and fewer nonwhite residents in their local communities.     

An early view of the impact of deregulation and managed care on hospital profitability and net worth

This study shows the impact of the removal of hospital rate regulation followed by the growth of managed care on hospitals' profitability and net worth. New Jersey emerged from a regulated prospective payment system in 1992. The transition to a freely competitive market structure had a negative impact on hospital profitability, net worth, patient length of stay, and other measures of capacity utilization. Similarly, the doubling of the HMO penetration rate in the state between 1995 and 1997 is shown to have negatively influenced hospital financial viability. Hospitals have responded in part by increasing usage of outpatient services. The use of discounted fee-for-service instead of per diem reimbursement for outpatient services provides an incentive for hospitals to favor outpatient over inpatient services. The effect of these changes is detailed, along with data showing that the larger discounts given by hospitals to managed care organizations, Medicare, and Medicaid played an important role in explaining the diminished profitability of hospitals.     

Where Does the Money Go? Analyzing the Patient Experience in Safety-Net Hospitals

BackgroundLow-income, publicly insured admissions historically cost more to treat than does the average patient. To ensure that hospitals are reimbursed an adequate amount for care of indigent populations, Medicare reimburses hospitals an additional percentage amount according to federally set financial schedule. At 15% of a disproportionate patient percentage, a hospital is reimbursed an extra 2.5% of the standard prospective payment rate.ObjectiveThis research seeks to determine whether hospital qualification as a Medicare Disproportionate Share Hospital results in higher patient experience ratings.MethodsA regression discontinuity method was used to determine the effect of lagged Disproportionate Share Hospital (DSH) status on next year patient experience ratings. The Hospital Consumer Assessment of Healthcare Providers and Systems data provide publicly available patient ratings.ResultsOn average, hospital ratings increase by 6% as a result of DSH status. Hospital ratings increase by an average of 6.5% when nonprofit hospitals are analyzed. This finding is primarily driven by patient facility cleanliness and medical provider communication ratings.ConclusionsThe federal mandate that individuals purchase health insurance in the United States coupled with the state expansion of Medicaid coverage will theoretically eliminate the need for Medicare DSH payments. It is calculated, however, that hospitals will need increased Medicaid reimbursements of more than $300 per patient to make up for the loss of Medicare DSH reimbursements. Hospitals will likely suffer financially as a direct result of reduced Medicare reimbursements through the DSH program.