GAO: Number of hospitals heavily dependent on Medicare has shrunk

By | March 3, 2020

Dive Brief:

  • The number of hospitals heavily dependent on Medicare decreased 28.5% between 2011 and 2017, according to a new report from the U.S. Government Accountability Office. However, their numbers were relatively small to begin with — and those that actually qualified for payments were an even smaller proportion.
  • The GAO attributes the shrinking number of hospitals in the Medicare Dependent Hospital Program to closures, mergers or acquisitions and changes in designation.
  • Hospitals in the program are usually smaller and more rural. Those hospitals with patient discharges including at least 60% Medicare enrollees and with 100 beds or fewer qualify for extra inpatient and outpatient payments.

Dive Insight:

The Medicare program has long offered supplemental payments to smaller hospitals in rural areas that have to service a shrinking population. It dates back to 1989.

Under the program, hospitals that meet the criteria can receive 75% of the difference between what they would receive as a payment under the hospital-specific rate compared to the inpatient prospective payment system, with their historical cost data factored into the equation. They can receive even more money if their inpatient volume declines due to circumstances beyond their control.

In the 2018 fiscal year, about $ 119 million in additional payments were made to qualifying hospitals. The payments averaged about 1.5% of a qualifying hospital’s overall revenue, although some received payments making up as much as 8.7% of total revenue.

However, as the number of rural hospitals have shrunk over the years, so have the number of institutions that have benefited from the program.

According to the GAO, 138 hospitals had criteria to qualify for the program in 2017, the most recent year for which data was available. Of those, only 78 qualified to receive additional payments. That compares to 2011, when 193 hospitals had qualifying criteria and 92 received payments.

However, those that received money have shared from a larger pot in recent years. The median payment was more than $ 812,000 in 2017, compared to around $ 695,000 in 2011, suggesting the overall financial performance of those hospitals that received the extra payments were also deteriorating. The maximum amount paid to a single hospital in 2017 was $ 10.4 million, compared to $ 7.3 million in 2011.

Hospitals qualifying for the program had an average profit margin of 1.6% in 2011. That declined by 2017 to -0.2%. Margins on Medicare patients declined by six percentage points between 2011 and 2017, from -6.9% to -12.9%, a far worse performance than all rural hospitals (-8.5% in 2017) or all hospitals participating in Medicare (-8.0%).

Revenue sources also changed. According to the GAO, hospitals that qualified for the program received on average 66% of their revenue came from inpatient services in 2011. That figure dropped to 58% in 2017.

Altogether, 16 Medicare-dependent hospitals closed between 2013 and 2017, according to the GAO report. Mergers and hospitals losing their designation as Medicare-dependent accounted for the remainder of the attrition, the agency said.

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