Behind a recently introduced bill to temporarily boost Medicare payments for medium-small hospitals is the claim that such hospitals treat fewer patients at higher cost, but for lessif anyprofit from the federal insurer.
The economy of scale works against such hospitals, say proponents of the bill (Aug. 4, p. 8). Industry insiders argue these relatively small hospitals, dubbed tweeners, admit too few patients to gain under Medicare when payments cover the average cost of care, but see too many to qualify as critical access, a designation for hospitals with up to 25 beds that raises Medicare reimbursement.
Sen. Chuck Grassley (R-Iowa) has championed the bill that would give tweeners a one-year revenue boost from Medicare, including an estimated $3.1 million for at least seven in his home state. It is absolutely imperative that these tweener hospitals get the assistance they need in order to keep their doors open, Grassley said in a written statement introducing the bill. They are often not only the sole producer of healthcare in rural areas, but are also significant employers and purchasers in the community, he said.
But a look at Medicare margins for hospitals using one measure of size, the number of beds, finds potentially eligible hospitals on mixed financial footing. Indeed, the smallest rural hospitalsthose with less than 50 beds, excluding tiny critical-access hospitalshad the strongest Medicare margins among all rural hospitals between 2000 and 2006, the last full year for which figures were available, an analysis of hospitals Medicare inpatient prospective payments by Cost Report Data Resources shows. These small hospitals even fared better than the smallest urban hospitals with fewer than 100 beds.
Margins for Medicare patients admitted to a hospital fell during the seven-year period, regardless of hospital size or location. But some dropped more sharply than others. For the smallest rural hospitals, margins narrowed to 3.8% in 2006 from 10.5% in 2000, according to the figures. Slightly larger rural hospitals, those with 50 to 99 beds, saw Medicare margins drop to -2.5% from 4.9%. The smallest urban hospitals ended the period with an average margin of -12%, down from 3.1% seven years earlier.
Its not certain how many hospitals with fewer than 100 beds would get a Medicare boost under the bill. The legislation would aid hospitals with fewer than 1,500 Medicare discharges that are located at least 15 miles from another hospital.
Keith Mueller, director of the Rural Policy Research Institutes Center for Rural Health Policy Analysis, in Omaha, Neb., said hospitals with lower numbers of patients face economic challenges, but its not clear how small is too small to be viable.
The nations small, remote hospitals with 25 or fewer beds already receive extra funding from Medicare as critical-access facilities.
In Grassleys home state, rural hospitals that stand to benefit have frequently reported operating losses in recent years. These hospitals often rely on investments to erase losses, sometimes without success, recent financial reports show.
Iowa hospitals stand to gain an estimated $3.1 million under the bills two Medicare provisions, according to the Iowa Hospital Association. The provisions will cost Medicare $100 million each in 2009, the Congressional Budget Office said in an analysis of a prior bill that included both measures.
One provision would increase Medicare inpatient payments in 2009 on a sliding scale for hospitals with up to 1,500 discharges of Medicare enrollees with coverage for hospital stays, known as Part A. The other measure would suspend in 2009 a formula that geographically adjusts wage reimbursement for Medicare-dependent hospitals.
The only real difference is the bed size, said Walter Winkler, chief financial officer of Keokuk (Iowa) Area Hospital, drawing a comparison between the economies of scale and operating challenges faced by his 105-bed hospital and the nations smallest critical-access hospitals. Keokuk is one of at least seven Iowa hospitals and 450 hospitals nationwide that may benefit under the proposed bill.
Winkler said Keokuks rural, elderly population leaves the hospital heavily dependent on Medicare. Combined with the safety net insurer Medicaid and the uninsured, Medicare accounts for 80% of the Keokuk hospitals business, he said. Meanwhile, the hospital loses 14 cents for each dollar spent treating Medicare payments. Private insurers bear some of the loss, but not all, Winkler said.
The Keokuk hospital and similarly sized Iowa hospitals struggled financially in recent years, according to financial records reported to Medicare from the American Hospital Directory.
In 2007, investments and nonpatient revenue pushed Keokuk Area Hospital $32,165 into the black after it lost $78,654 on operations. The hospital wasnt so lucky in 2006, 2004 or 2003, when nonoperating income failed to offset losses of $1.7 million, $1.2 million and $1.4 million, respectively. The facility posted a $194,400 profit in 2005. Its unclear how much aid Keokuk might see should Congress pass the relief measures, Winkler said.
Grinnell (Iowa) Regional Medical Center, with 49 beds, reported operating losses for all patients, including Medicare enrollees, of $3.9 million in 2006 and $3 million the prior year. Quite frankly, Im looking forward to the day that Medicare pays on efficiency and quality, said Todd Nelson, vice president and chief financial officer of Grinnell. (See Letters, p. 50.)
Of five other rural Iowa hospitals identified as beneficiaries, one regularly reported operating gains to Medicare, 50-bed Fort Madison (Iowa) Community Hospital.