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Analysis

Medicare Public Option Threatens Half of Rural Hospitals

By John Commins  
   August 09, 2019

A new study shows that lower reimbursements from a Medicare public option would threaten 1,037 rural hospitals in 46 states, which represent more than 63,000 staffed beds, 420,000 employees, and 55% of all rural hospitals.

A public option health plan paying Medicare reimbursement rates could shutter more than half of the nation's rural hospitals, according to a new study.

"Even those rural hospitals not at high risk of closure and the communities they serve face an increased threat," according to the study by Navigant Consulting, Inc.

"The availability of a public option could negatively impact access to and quality of care through rural hospitals' potential elimination of services and reduction of clinical and administrative staff, as well as damage the economic foundation of the communities these hospitals serve.," the study said.

The study notes that, with the exception of critical access hospitals, most rural hospitals contend with a negative operating margin of more than 8% when providing care for Medicare patients, and cost-shift to higher-paying commercial plans and employers to offset the loss.

A Medicare public option would threaten 1,037 rural hospitals in 46 states, which represent more than 63,000 staffed beds, 420,000 employees, and 55% of all rural hospitals in the United States, the study said.  

The study looked at three scenarios should a Medicare public option plan come to fruition.

  1. Revenue loss to rural hospitals is projected to be 2.3% under a Medicare public option if only the uninsured and current individual market participants shift to the public option, placing an estimated 28% of rural hospitals at high risk of closure.
     
  2. If employers shift 25% to 50% of their covered workers from commercial coverage to a Medicare public option, hospital revenues would fall 8%-14% and cause an estimated 51% to 55% to face high risk of closure with an additional 39% to 41% facing moderate risk.
     
  3. Medicare would have to increase hospital payments for a public option between 40% and 60% above present Medicare rates to keep hospitals whole. That would cost between $4 billion and $25 billion annually, depending upon how many employers shift to the public option.
     

More than 100 rural hospitals have closed across 29 states since 2010, and rural hospitals in states that have not expanded their Medicaid rolls have been particularly hard hit.

To help struggling rural hospitals, the Trump administration last week issued a final rule to increase the wage index for hospitals with a wage index value below the 25th percentile. CMS is also finalizing changes to the wage index "rural floor" that will remove urban to rural hospital reclassifications from the calculation of the rural floor wage index value beginning in FY 2020.

To pay for the wage index hike, CMS is using a budget neutrality adjustment to the standardized amount that is applied across all IPPS hospitals. The American Hospital Association said the wage index hike for rural hospitals comes at the expense of urban hospitals, and has called on CMS to "increase the wage index in a non-budget neutral manner."

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.


KEY TAKEAWAYS

With the exception of critical access hospitals, most rural hospitals contend with a negative operating margin of more than 8% when providing care for Medicare patients.

Medicare would have to increase hospital payments for a public option between 40% and 60% above present Medicare rates to keep hospitals whole.


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