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The evolution of hospital designations and payment in the U.S: implications for rural hospitals
The evolution of hospital designations and payment in the U.S: implications for rural hospitals
- Collection:
- Health Policy and Services Research
- Author(s):
- Oyeka, Onyinye, author
MacKinney, A. Clinton, author
Mueller, Keith J., 1951- author
Ferdinand, Alva O., author
Knudson, Alana, author
Lundblad, Jennifer P., author
McBride, Timothy D., author - Contributor(s):
- Rural Policy Research Institute (U.S.), issuing body.
- Publication:
- [Iowa City, Iowa] : Rural Policy Research Institute, December 2022
- Language(s):
- English
- Format:
- Text
- Subject(s):
- Hospitals, Rural -- classification
Hospitals, Rural -- economics
Medicare -- economics
Prospective Payment System -- economics
Prospective Payment System -- history
United States - Genre(s):
- Technical Report
- Abstract:
- Between 2005 and 2022, 181 rural hospitals in the U.S. closed. Hospital closures are often caused by inadequate operating margins to cover fixed costs. The financial viability of a rural hospital is dependent on several factors, including Medicare payment rates implemented by the Centers for Medicare & Medicaid Services (CMS). Due to Medicare’s status as the principal payer of rural hospitals, Medicare payment policy plays a predominant role in rural hospitals’ financial viability. Payment systems are fundamental to a rural hospital’s financial viability and capacity to fulfill its mission. When Medicare and Medicaid were first implemented, hospitals were reimbursed for patient care under a retrospective cost-based reimbursement system. Hospital costs under this system increased dramatically, from $3 billion in 1967 to $37 billion in 1983. To control the growth of hospital spending and incentivize hospitals to operate efficiently, Congress established the Medicare Inpatient Prospective Payment System (Inpatient PPS) in 1983. Inpatient PPS substituted a predetermined, standardized payment for an entire inpatient episode rather than a payment based on the cost of providing care. Inpatient PPS was based on state demonstrations led by the then Health Care Financing Administration (HCFA), now the Centers for Medicare & Medicaid Services (CMS) Office of Research and Demonstration. Inpatient PPS demonstrations primarily occurred in urban hospitals, with minimal rural testing before nationwide implementation. However, the original Inpatient PPS did not adequately consider the unique environment in which most rural hospitals operate. In the early years of Inpatient PPS, rural hospitals, especially small rural hospitals, frequently experienced financial losses when treating Medicare patients because payments were inadequate to cover the cost of providing care. Consequent to inadequate payment, rural hospital closures increased from an average of 14 per year in 1980 to more than 40 per year in 1989. In response to rural hospital closures, Congress created a series of special designations for certain rural hospitals (including the Critical Access Hospital [CAH] designation in 1997) and modified the Inpatient PPS to increase payments to rural hospitals at risk for financial distress. Over time, Congress has implemented further statutory provisions and demonstrations that increase Medicare payments to rural hospitals and test innovative delivery and value-based payment models designed to improve rural hospitals financial sustainability and maintain access to essential rural health care services. The past is a prologue for the future; therefore, this paper aims to provide an overview of historic and current Medicare rural hospital payment policies and alternative payment models to understand their impact on rural hospitals and the communities they serve. We first describe the realities of rural hospitals that should be considered when designing payment systems and discuss the historical context leading to the implementation of the Inpatient PPS. We then describe special rural hospital payment provisions and designations, including legislative modifications to the Inpatient PPS. Finally, we describe current federal payment models that are of importance to rural hospitals and potential revenue streams that support rural hospitals.
- Copyright:
- The National Library of Medicine believes this item to be in the public domain. (More information)
- Extent:
- 1 online resource (1 PDF file (33 pages))
- NLM Unique ID:
- 9918716489006676 (See catalog record)
- Permanent Link:
- http://resource.nlm.nih.gov/9918716489006676