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.     

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 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.     

Rural Hospital Flexibility Program: The Tracking Project Reports First-year Findings

The Balanced Budget Act (BBA) of 1997 set in motion changes in how health care services are financed and organized. Legislation in 1999 and 2000 modifying the BBA confirmed a congressional sense that innovations in payment might precipitate changes in the delivery systems that could sustain those systems in rural areas. It is too early to judge whether or not new approaches, such as critical access hospitals, will strengthen the financial viability of rural systems while sustaining and improving quality of care. However, this report from the research centers tracking responses to the legislation does tell us how hospitals and state governments are responding to new opportunities. From that knowledge, we gain a sense of whether or not the new model is workable, a prerequisite to its being successful. As we approach the final two years of the original authorization for the grant program, a careful assessment of what we have learned will inform decisions about further investments in the rural health care delivery infrastructure.     

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.     

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 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.     

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.     

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.     

Principal inpatient diagnostic cost group model for Medicare risk adjustment

The Balanced Budget Act (BBA) of 1997 required HCFA to implement health-status-based risk adjustment for Medicare capitation payments for managed care plans by January 1, 2000. In support of this mandate, HCFA has been collecting inpatient encounter data from health plans since 1997. These data include diagnoses and other information that can be used to identify chronic medical problems that contribute to higher costs, so that health plans can be paid more when they care for sicker patients. In this article, the authors describe the risk-adjustment model HCFA is implementing in the year 2000, known as the Principal Inpatient Diagnostic Cost Group (PIPDCG) model.     

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.     

National health expenditures, 1998

In 1998, national health care expenditures reached $1.1 trillion, an increase of 5.6 percent from the previous year. This marked the fifth consecutive year of spending growth under 6 percent. Underlying the stability of the overall growth, major changes began taking place within the Nation's health care system. Public payers felt the initial effects of the Balanced Budget Act of 1997 (BBA), and private payers experienced increased health care costs and increased premium growth.     

Illness severity and propensity to travel along the urban-rural continuum

In this paper, we examine whether the relationship between severity of illness and the propensity to travel greater distance relative to the norm (defined by peers in one's county of residence) is uniform across the urban-rural continuum of geography or over time. We focus on the elderly in New York State who have been admitted to hospital for ambulatory care sensitive conditions (ACSCs), admissions which are presumed to be representative of usual travel patterns. The two periods of time examined span the implementation of the Balanced Budget Act (BBA) of 1997, which established the Medicare Rural Hospital Flexibility Program, a major national initiative to strengthen rural health care with the development of rural Critical Access Hospitals (CAHs). As the number of NY rural hospitals certified as CAH increased with the expanded funding from the BBA, one might expect to see increased distance traveled by more severely ill rural elderly, as their CAHs referred them to their affiliated support hospitals. The logistic regression estimates support this expectation, highlighting an asymmetrical relationship between relative distance and severity across patients in rural and urban areas. Despite a general decline in average propensity to travel further than the norm across the landscape, severity had a larger impact on travel propensity in rural areas, which increased over time.     

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.     

The impact of the Balanced Budget Act of 1997 on the physical therapy profession

The Balanced Budget Act (BBA) of 1997 was one of the most significant acts of legislation ever to affect the physical therapy profession. Three months after the BBA was implemented, a survey of over 600 physical therapists in the state of Florida was conducted. This article examines the immediate impact of the BBA on physical therapists and their ability--or their perception of their ability--to maintain or successfully seek full-time employment in the profession.     

Reforming Medicare payment: early effects of the 1997 Balanced Budget Act on postacute care

The 1997 Balanced Budget Act (BBA) reformed payment for Medicare postacute services. This article examines postacute care use just before and immediately after implementation of the BBA for hospital discharges for five diagnosis-related groups that commonly use postacute care. Changes in treatment patterns were more beneficiaries receiving no postacute care, much less use of home health services both initially and after initial institutional postacute care, and slightly more use of rehabilitation and long-term care hospitals. But no consistent increases in adverse outcomes were observed using logistic regression models. These results demonstrate that financing changes can affect use patterns, that less use does not automatically imply poorer quality, and that the interrelationship of services should be considered when designing reimbursement methodologies.     

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.     

Implementation of risk adjustment for Medicare

The Health Care Financing Administration (HCFA) implemented risk adjustment for Medicare capitated organizations January 2000. The risk adjustment system used, the Principal Inpatient Diagnostic Cost Group (PIPDCG) method, had to be incorporated into the payment structure mandated by the Balanced Budget Act of 1997 (BBA). This article describes how risk adjustment was integrated into the payment system within the rules of the BBA, and how fee-for-service (FFS) and health maintenance organization (HMO) data are collected and used in the determination of payment.     

Constraining Medicare home health reimbursement: what are the outcomes?

The implementation of the Balanced Budget Act (BBA) of 1997 resulted in substantial decreases in the amount of Medicare home health use. Use among home health users decreased by two-fifths from fiscal year (FY) 1997, just before the passage of the BBA to FY 1999, the first full year after the implementation of the home health interim payment system. This article examines whether these dramatic reductions in use resulted in increased incidence of potential adverse outcomes, i.e., increases in hospitalizations, skilled nursing home facility admissions, emergency room (ER) use, or death among home health users.     

Rolling back Medicare home health

The Balanced Budget Act (BBA) of 1997 included major changes to Medicare's home health benefit designed to control spending and promote efficient delivery of services. Using national data from Medicare home health claims, this study finds the initial effect of the BBA was to steeply reduce use of the home health benefit and intensify its focus on post-acute skilled nursing and therapy services. The striking responsiveness of home health agencies (HHAs) to altered financial incentives suggests that we may again see large shifts in patterns of care under the new incentives of Medicare's prospective payment system (PPS) for home health.