Medicare's senior accountant highlighted in congressional testimony Wednesday a little-noted prediction that 40% of hospitals will become unprofitable by 2050 under a provision of the healthcare reform law, which will cause them to drop out of the program or go bankrupt.

The comments of Richard Foster, chief actuary for the CMS, on a profitability projection included in a 2011 Medicare trustees report (PDF) came in response to questions about the largest looming impacts on providers by Rep. Paul Ryan (R-Wis.), chairman of the Budget Committee, during a hearing on Medicare.

“If at some point our payment rates to providers become significantly less than their cost of providing services, they either will be unable or unwilling to provide continued services,” Foster testified.

The drop in hospital profitability stems from a provision of the Patient Protection and Affordable Care Act that reduces Medicare's hospital payments by about 1.1% each year.

The cut was a provision of the 2010 healthcare law that Foster expected Congress to rescind under the “illustrative scenario” he issued in April to project future healthcare spending under more realistic assumptions than those used by other government accountants. For example, his estimates of future spending assumed Congress would avert physician payment cuts scheduled for the end of this year.

Foster expects Congress to allow the annual hospital payments to stand for 10 years—based on the cuts hospital representatives agreed to during White House negotiations on the healthcare law—before phasing them out to avoid Medicare's widespread loss of hospitals.

Complicating such a move, he noted, is that the hospital payment cuts will provide over $200 billion of the more than $500 billion in the 10-year Medicare savings included in the law.