Number of Medicare-Dependent Hospitals Falls by 28%

The number of hospitals treating disproportionate volumes of Medicare beneficiaries declined by 28 percent from 2011 through 2017, and these Medicare-dependent hospitals (MDHs) received less additional payments during the period, a new analysis shows.

The analysis conducted by the Government Accountability Office (GAO) examined data submitted to CMS by hospitals from fiscal years 2011 through 2017 – the most recent year for which consistent data was available from CMS. GAO also reviewed CMS regulations and other agency documents to describe the changes that occurred in the number of MDHs and selected metrics over time.

GAO found a significant decline in the number of hospitals participating in the MDH program, which was enacted in 1989 to provide financial support to small, rural hospitals that have 60 percent or more of inpatient days or discharges from Medicare patients, 100 or fewer beds, and that are generally located in a rural area. The program was most recently extended through 2022 by the Bipartisan Budget Act of 2018.

In 2018, CMS estimated that the MDH program paid approximately $119 million in additional payments to hospitals for which Inpatient Prospective Payment System (IPPS) reimbursements were not enough.

However, the number of MDHs receiving these additional cost-based reimbursements is on the decline, GAO found.

Not only did the number of MDHs fall from 183 to 139 from 2011 through 2017, but about 15 percent fewer participating hospitals received a payment from the program during the period.

Some of the hospitals become ineligible for program participation during the period by failing to meet eligibility criteria, such as Medicare volume and number of beds. However, other MDHs did not receive the financial support because of hospital closures, mergers, and changes in designation, GAO explained.

The federal watchdog previously reported that 16 MDHs closed between 2013 and 2017.

MDHs experienced overall declines in profit margins, GAO found in its latest report. The analysis of self-reported data from hospitals revealed that Medicare profit margins declined by an average of 6 percentage points from 2011 through 2017, while total facility profit margins turned from positive to negative and dropped by nearly 2 percentage points during the period.

The findings showed that MDHs were not profitable by 2017 versus other types of hospitals. GAO reported that the degree to which Medicare margins fell for MDHs during the period was greater than the degree to which the margins declined for rural hospitals (4 percentage points) and all hospitals (3 percentage points).

MDHs also saw a substantial decrease in inpatient volumes from 2011 through 2017. The analysis showed that about two-thirds of MDH Medicare revenue came from inpatient services in 2011. But by 2017, that proportion fell to 58 percent – a 13 percent decline.

In comparison, rural hospitals experienced an 11 percent decrease and all hospitals saw a 10 percent decrease.

Overall, GAO found that hospitals with a higher Medicare share of total-care revenue had lower total facility margins on average. However, the watchdog observed no significant relationship between total facility margins and the inpatient volume-based measures of Medicare dependence, indicating that a higher volume of inpatient services is not associated with lower profitability.

The GAO report underscores the precarious situation rural healthcare is currently in.

2019 proved to be the single worse year for rural hospital closures, with 19 facilities shuttering their doors, according to the Chartis Center for Rural Health. Additionally, the organization found that more than 450 rural hospitals are currently vulnerable to closure.

Rural hospitals are struggling to stay afloat financially, especially as stand-alone facilities that do not receive additional support from state and federal healthcare programs like Medicare.

Medicare alone offers four other designations for rural hospitals – critical access hospital, sole community hospital, low-volume adjustment hospital, and rural referral center. Each of these programs offers qualifying hospitals financial support for caring for Medicare beneficiaries, but each program also has its own eligibility criteria in addition to payment methodologies.

Unlike many of these programs, the MDH designation is a temporary program for small, rural hospitals that must be extended periodically by Congress in order to continue. In the recent past, the program has expired, resulting in temporary lapses in payments to MDHs.

The only other designation that must be extends if the low-volume hospital classification, which was temporarily expanded in 2010 under the Affordable Care Act to include more hospitals with higher volumes of discharges and that are located closer to other hospitals compared to previous years. As it stands, the designation is slated to expire in fiscal year 2022 after which the designation will return to narrower eligibility rules.