Medicare Hospital Cost Reports Research Articles

Policy implications of fixed-to-total-cost ratio variation across rural and urban hospitals.

Hospitals with lower fixed-to-total-cost ratios may be better positioned to remain financially viable when reducing service volumes required by many value-based payment systems. We assessed whether hospitals in rural areas have higher fixed-to-total-cost ratios, which would tend to create a systematic disadvantage in such an environment. Our observational study used a mixed-effects, repeated-measures model to analyze Medicare Hospital Cost Report Information System data for 2011-2020. We included all 4,953 nonfederal, short-term acute hospitals in the United States that are present in these years. After estimating the relationship between volume (measured in adjusted patient days) and patient-care costs in a model that controlled for a small number of hospital characteristics, we calculated fixed-to-total-cost ratios based on our model's estimates. We found that nonmetropolitan hospitals tend to have higher average fixed-to-total-cost ratios (0.85-0.95) than metropolitan hospitals (0.73-0.78). Moreover, the degree of rurality matters; hospitals in micropolitan counties have lower ratios (0.85-0.87) than hospitals in noncore counties (0.91-0.95). While the Critical Access Hospital (CAH) designation is associated with higher average fixed-to-total-cost ratios, high fixed-to-total-cost ratios are not exclusive to CAHs. Overall, these results suggest that hospital payment policy and payment model development should consider hospital fixed-to-total-cost ratios particularly in settings where economies of scale are unattainable, and where the hospital provides a sense of security to the community it serves.

Influence of Not-for-Profit Hospital Ownership Type on Community Benefit and Charity Care.

Non-profit hospitals are expected to provide charity care and other community benefits to adjust their tax exemption status. Using the Medicare Hospital Cost Report, American Hospital Association Annual Survey, and the American Community Survey datasets, we examined if church-affiliated hospitals spent more on charity care and community benefit. For this analysis, we defined five main categories of community benefits were measured: total community benefit; charity care; Medicaid shortfall; unreimbursed other means-tested services; and the total of unreimbursed education and unfunded research.Multiple regression was used to examine the effect of church ownership, controlling for other factors, on the level of community benefit in 2644 general acute care non-profit hospitals. Descriptive analyses and multiple regression were used to show the relationship between the provision of community benefits and church affiliation including Catholic (CH), other church-affiliated hospitals (OCAH), and non-church affiliated hospitals (NCAH). The non-profit hospital on average spent 6.5% of its total expenses on community benefits. NCAH spent 6.09%, CH spent 7.5%, and OCAH spent 9.4%. Non-profits spent 2.8% of their total expenses on charity care, with the highest charity care spending for OCAH (5.2%), followed by CH (3.9%), and NCAH (2.4%). Regression results showed that CH and OCAH, on average, spent 1.08% and 2.16% more on community benefits than NCAHs. In addition, CH and OCAH spent more on other categories of community benefits except for education and research. Church-affiliated hospitals spend more on community benefits and charity care than non-church affiliated nonprofit hospitals.

Charity Care Debate Flares

Bloomberg Law's Daily Tax Report, on April 5, drew attention to an article in the April 3 issue of Health Affairs journal, finding that nonprofit (and government) hospitals are providing lower levels of charity care than for‐profit hospitals. Using 2018 Medicare hospital cost reports, the Health Affairs authors compared charity care provision across 2,709 nonprofit hospitals, 1,024 government hospitals, and 930 for‐profit hospitals. Nonprofit hospitals are said to have spent $2.30 of every $100 in total aggregate expenses incurred for charity, while the charity care expenses for government hospitals was $4.10/$100 and for for‐profit hospitals was $3.80/$100.

Comparing the value of community benefit and Tax-Exemption in non-profit hospitals.

ObjectiveWe examined the characteristics of non‐profit hospitals providing more community benefits and charity care than value of their tax exemptions and how this relationship changed between 2011 and 2018.Data sourcesPrimary dataset was schedule H Form IRS 990 data. This data was merged with the American Hospital Association, Medicare Hospital Cost Report, and the America Community Survey.Study designWe measured six categories of tax benefits and 17 types of community benefits. Subtracting the average value of community benefits provided by for‐profit hospitals, we computed incremental community benefit and charity care provided by each non‐profit hospital.Extraction methodsA nationally representative sample was created of 11 776 non‐profit hospital‐year observations from 1472 unique hospitals over the 2011 to 2018 period was created. Descriptive analyses and random effect logistic regression were used to show associations between hospital characteristics and difference between incremental net community benefits and the value of tax‐exemption.Principal findingsAfter adjusting for community benefits provided by for‐profits hospitals, on average, non‐profit hospitals spent 5.9% (CI: 5.8%‐6.0%) of their total expenses on community benefits; 1.3% (CI: 1.2%‐1.3%) on charity care; and received 4.3% (CI: 4.2%‐4.4%) of total expenses in tax exemptions. A total of 38.5% of non‐profit hospitals did not provide more community benefit and 86% did not provide more charity care than the value of their tax exemption. Hospitals with fewer beds, providing residency education and located in high poverty communities were more likely to provide more incremental community benefits and charity care than the value of their tax exemption, while system affiliation had a negative association.ConclusionThe amount of community benefits and charity care provided by non‐profits varied substantially across non‐profit hospitals. Establishing minimum requirements for non‐profit hospitals or publicly ranking hospitals based on their community benefit or charity care contributions, could encourage greater community benefits and charity care.

Analysis Suggests Government And Nonprofit Hospitals' Charity Care Is Not Aligned With Their Favorable Tax Treatment.

The different tax treatment of government, nonprofit, and for-profit hospitals implies different charity care obligations, with the greatest obligation for government hospitals and the least for for-profit hospitals. Prior research has not examined charity care provision among all three ownership types at the national level. Using 2018 Medicare Hospital Cost Reports, we compared charity care provision across 1,024 government, 2,709 nonprofit, and 930 for-profit hospitals. In aggregate, nonprofit hospitals spent $2.3 of every $100 in total expenses incurred on charity care, which was less than government ($4.1) or for-profit ($3.8) hospitals. No hospital ownership type outperformed the other two types with respect to charity care provision in a majority of hospital service areas containing all three types. Using different kinds of analyses, we also found wide variation in charity care provision within ownership types and a lack of a consistent pattern across ownership types. These results suggest that many government and nonprofit hospitals' charity care provision was not aligned with their charity care obligations arising from their favorable tax treatment. Policy makers may consider initiatives to enhance hospitals' charity care provision, particularly hospitals with government and nonprofit ownership.

Relationship between initiation of 340B participation and hospital safety-net engagement.

The 340B program allows safety-net hospitals to acquire discounted outpatient drugs and charge payers full price. We examined whether 340B participation increases safety-net engagement. 340B participation data, Medicare hospital cost reports, American Hospital Association Survey, and Schedule 990 nonprofit hospital tax returns. Quasi-experimental difference-in-differences design comparing 340B hospitals (the "treatment" group) before and after participating to changes over time to three alternative "control" groups: all other nonprofit and public hospitals, hospitals that are not participating during our study, and hospitals that were not-yet-participating but started after 2015. Outcome measures include a range of safety-net care measures that are alternatives to the standard uncompensated care: charity care, community benefit spending, charity care policies, and low-profit service-line provision. We extracted data on all nonprofit and public hospitals from 2011 to 2015. We linked 340B participation data to Medicare hospital cost reports and American Hospital Association data using Medicare hospital identifiers. 990 Data was linked on name and address. New 340B participation was not associated with a change in uncompensated care, but was associated with a 28.9 percent increase in charity care spending (SE=8.8), or about $880,000 per hospital. However, total community benefit spending (including charity care) did not change. 340B was associated with an increase in the probability of offering discounted care (4.3 percentage points, SE=1.6) from 84 to 88 percent and an increase in the income eligibility limit for discounted care (18.9 percentage points, SE=5.6) from 294 to 313 percent. Participation was not associated with the probability of offering low-profit medical care services. Alternative measures show that newly participating hospitals may increase charity care, potentially through offering more patients discounted care. However, increases appear to be fully offset by reductions in other community benefit programs.

The Effect of the Magnet Recognition Signal on Hospital Financial Performance.

The objective of this study was to investigate the effect of the Magnet Recognition (MR) signal on hospital financial performance. MR is a quality designation granted by the American Nurses Credentialing Center (ANCC). Growing evidence shows that MR hospitals are associated with various interrelated positive outcomes that have been theorized to affect hospital financial performance.In this study, which covered the period from 2000 to 2010, we applied a pre-post research design using a longitudinal, unbalanced panel of MR hospitals and hospitals that had never received MR designation located in urban areas in the United States. We obtained data for this analysis from Medicare's Hospital Cost Report Information System, the American Hospital Association Annual Survey Database, the Health Resources & Services Administration's Area Resource File, and the ANCC website. Propensity score matching was used to construct the final study sample. We then applied a difference-in-difference model with hospital fixed effects to the matched hospital sample to test the effect of the MR signal, while controlling for both hospital and market characteristics.According to signaling theory, signals aim to reduce the imbalance of information between two parties, such as patients and providers. The MR signal was found to have a significant positive effect on hospital financial performance. These findings support claims in the literature that the nonfinancial benefits resulting from MR lead to improved financial performance. In the current healthcare environment in which reimbursement is increasingly tied to delivery of quality care, healthcare executives may be encouraged to pursue MR to help hospitals maintain their financial viability while improving quality of care.

Contrary To Cost-Shift Theory, Lower Medicare Hospital Payment Rates For Inpatient Care Lead To Lower Private Payment Rates

Many policy makers believe that when Medicare constrains its payment rates for hospital inpatient care, private insurers end up paying higher rates as a result. I tested this "cost-shifting" theory using a unique new data set that combines MarketScan private claims data with Medicare hospital cost reports. Contrary to the theory, I found that hospital markets with relatively slow growth in Medicare inpatient hospital payment rates also had relatively slow growth in private hospital payment rates during 1995-2009. Using regression analyses, I found that a 10 percent reduction in Medicare payment rates led to an estimated reduction in private payment rates of 3 percent or 8 percent, depending on the statistical model used. These payment rate spillovers may reflect an effort by hospitals to rein in their operating costs in the face of lower Medicare payment rates. Alternatively, hospitals facing cuts in Medicare payment rates may also cut the payment rates they seek from private payers to attract more privately insured patients. My findings indicate that repealing cuts in Medicare payment rates would not slow the growth in spending on hospital care by private insurers and would in fact be likely to accelerate the growth in private insurers' costs and premiums.

The Impact of HCAʼs 2006 Leveraged Buyout on Hospital Performance

Leveraged buyout (LBO) arrangements are a reorganization strategy whereby a firm assumes a substantial amount of debt to buy back its publicly held stock to become privately held. LBOs offer a firm several advantages and have the potential to increase efficiency. In the past 20 years, several healthcare firms have engaged in LBOs, but the literature on performance changes in healthcare organizations as a result of an LBO is limited. In this article, we report on a study that examined the performance of Hospital Corporation of America (HCA) hospitals before and after the LBO that was initiated in 2006. We used data from the Medicare Hospital Cost Report Information System and analyzed data from 130 HCA hospitals and 490 comparison hospitals. Findings show that HCA hospitals reduced expenses and their number of full-time equivalents (FTEs) relative to local competitor hospitals. HCA hospitals' cash-flow-margin ratio was substantially higher when adjusted for its local competing hospitals at the beginning of the LBO as well as at end of the LBO. When compared to local hospitals, HCA hospitals had a significant decrease in their capital investment in fixed assets from 2006 to 2009. These findings underscore the effectiveness of HCA's management strategies to repay debt and increase the value of the company, and they are informative for healthcare firms and their managers who are considering LBOs.

Does decreased access to emergency departments affect patient outcomes? Analysis of acute myocardial infarction population 1996-2005.

We analyze whether decreased emergency department (ED) access results in adverse patient outcomes or changes in the patient health profile for patients with acute myocardial infarction (AMI). We merge Medicare claims, American Hospital Association annual surveys, Medicare hospital cost reports, and location information for 1995-2005. We define four ED access change categories and estimate a ZIP Code fixed-effects regression models on the following AMI outcomes: mortality rates, age, and probability of percutaneous transluminal coronary angioplasty (PTCA) on day of admission. We find a small increase in 30-day to 1-year mortality rates among patients in communities that experience a <10-minute increase in driving time. Among patients in communities with >30-minute increases, we find a substantial increase in long-term mortality rates, a shift to younger ages (suggesting that older patients die en route), and a higher probability of immediate PTCA. Most of the adverse effects disappear after the transition years. Deterioration in geographic access to ED affects a small segment of the population, and most adverse effects are transitory. Policy planners can minimize the adverse effects by providing assistance to ensure adequate capacity of remaining EDs, and facilitating the realignment of health care resources during the critical transition periods.

Factors Associated With Closures of Emergency Departments in the United States

Between 1998 and 2008, the number of hospital-based emergency departments (EDs) in the United States declined, while the number of ED visits increased, particularly visits by patients who were publicly insured and uninsured. Little is known about the hospital, community, and market factors associated with ED closures. Federal law requiring EDs to treat all in need regardless of a patient's ability to pay may make EDs more vulnerable to the market forces that govern US health care. To determine hospital, community, and market factors associated with ED closures. Emergency department and hospital organizational information from 1990 through 2009 was acquired from the American Hospital Association (AHA) Annual Surveys (annual response rates ranging from 84%-92%) and merged with hospital financial and payer mix information available through 2007 from Medicare hospital cost reports. We evaluated 3 sets of risk factors: hospital characteristics (safety net [as defined by hospitals caring for more than double their Medicaid share of discharges compared with other hospitals within a 15-mile radius], ownership, teaching status, system membership, ED size, case mix), county population demographics (race, poverty, uninsurance, elderly), and market factors (ownership mix, profit margin, location in a competitive market, presence of other EDs). All general, acute, nonrural, short-stay hospitals in the United States with an operating ED anytime from 1990-2009. Closure of an ED during the study period. From 1990 to 2009, the number of hospitals with EDs in nonrural areas declined from 2446 to 1779, with 1041 EDs closing and 374 hospitals opening EDs. Based on analysis of 2814 urban acute-care hospitals, constituting 36,335 hospital-year observations over an 18-year study interval (1990-2007), for-profit hospitals and those with low profit margins were more likely to close than their counterparts (cumulative hazard rate based on bivariate model, 26% vs 16%; hazard ratio [HR], 1.8; 95% confidence interval [CI], 1.5-2.1, and 36% vs 18%; HR, 1.9; 95% CI, 1.6-2.3, respectively). Hospitals in more competitive markets had a significantly higher risk of closing their EDs (34% vs 17%; HR, 1.3; 95% CI, 1.1-1.6), as did safety-net hospitals (10% vs 6%; HR, 1.4; 95% CI, 1.1-1.7) and those serving a higher share of populations in poverty (37% vs 31%; HR, 1.4; 95% CI, 1.1-1.7). From 1990 to 2009, the number of hospital EDs in nonrural areas declined by 27%, with for-profit ownership, location in a competitive market, safety-net status, and low profit margin associated with increased risk of ED closure.

The relationship between safety net activities and hospital financial performance

BackgroundDuring the 1990's hospitals in the U.S were faced with cost containment charges, which may have disproportionately impacted hospitals that serve poor patients. The purposes of this paper are to study the impact of safety net activities on total profit margins and operating expenditures, and to trace these relationships over the 1990s for all U.S urban hospitals, controlling for hospital and market characteristics.MethodsThe primary data source used for this analysis is the Annual Survey of Hospitals from the American Hospital Association and Medicare Hospital Cost Reports for years 1990-1999. Ordinary least square, hospital fixed effects, and two-stage least square analyses were performed for years 1990-1999. Logged total profit margin and operating expenditure were the dependent variables. The safety net activities are the socioeconomic status of the population in the hospital serving area, and Medicaid intensity. In some specifications, we also included uncompensated care burden.ResultsWe found little evidence of negative effects of safety net activities on total margin. However, hospitals serving a low socioeconomic population had lower expenditure raising concerns for the quality of the services provided.ConclusionsDespite potentially negative policy and market changes during the 1990s, safety net activities do not appear to have imperiled the survival of hospitals. There may, however, be concerns about the long-term quality of the services for hospitals serving low socioeconomic population.

The Effect of Preoperative and Hospital Characteristics on Costs for Coronary Artery Bypass Graft

This study aimed at exploring the effect of preoperative risk factors and hospital characteristics on costs of coronary artery bypass graft (CABG) hospitalizations. The considerable investment in hospital-based cardiac programs has not been coupled with comparable efforts to explore cost drivers of associated procedures. Data sources included (a) New York State's Cardiac Surgery Reporting System, (b) New York State's Statewide Planning and Research Cooperative System dataset, (c) American Hospital Association dataset, and (d) Medicare Hospital Cost Report Public Use files and wage index files. The study population comprised New York state residents who underwent an isolated CABG procedure in a New York State hospital and were discharged in 2003. The outcome measure was inpatient costs. Independent variables included patient (demographic and clinical) and hospital characteristics. The total number of cases was 12,016. Findings revealed that selected demographic characteristics, including older age, female gender, and being black, were associated with higher costs. Several clinical characteristics were found to affect CABG discharge costs such as lower ejection fraction, the duration between CABG admission and the occurrence of myocardial infarction, number of diseased vessels, previous open heart operations, and a number of comorbidities. Furthermore, larger hospitals were associated with higher CABG discharge costs, while costs significantly decreased with higher CABG volume. Hospitals should explore ways to address patient (patient management) and hospital (case volume), when possible, associated with higher CABG discharge costs in its efforts to contain costs.

Impact of Critical Access Hospital Conversion on Beneficiary Liability

While the Medicare Critical Access Hospital (CAH) program has improved the financial viability of small rural hospitals and enhanced access to care in rural communities, the program puts beneficiaries at risk for paying a larger share of the cost of services covered under the Medicare part B benefit. This paper examines the impact of hospital conversion to CAH status on beneficiary out-of-pocket coinsurance payments for hospital outpatient services. The study is based on a retrospective observational design using administrative data from Medicare hospital cost reports and fee-for-service beneficiary claims from 1999 to 2003. The study compares changes in beneficiary co-payments before versus after CAH conversion with payment trends among small rural non-converting hospitals over the same period. Conversion to CAH status is associated with an increase in beneficiary coinsurance payments per outpatient visit of $17.19, equivalent to 34% of the sample average. However, CAH designation had no significant effect on the share of outpatient costs paid by the beneficiary. Most of the increase in beneficiary liability associated with conversion is attributable to the provision of more services per outpatient visit. While this and other studies show that conversion to CAH status results in more intensive outpatient care, CAH conversion does not appear to inadvertently create financial barriers to accessing ambulatory services in remote rural communities by forcing beneficiaries to pay a higher share of their Medicare part B costs.

Do HMO and its for‐profit expansion jeopardize the survival of hospital safety net services?

This study examines the effect of health maintenance organizations (HMOs) and for-profit HMO share on the survival of safety net services in hospitals between 1990 and 2004. The primary data sources are the American Hospital Association Annual Surveys, the Medicare hospital cost reports, and the HMO enrollment and ownership data from Interstudy. I analyze the risks of shutting down each safety net service separately using the proportional hazard models. I find that the risks of shutting down hospital safety net services do not vary by different levels of overall HMO penetration. However, conditional on the overall HMO penetration level, increasing for-profit presence of HMO does increase the risks of shutting down several safety net services. Policies evaluating the for-profit expansion or ownership conversion of health plans should take this potential adverse effect into consideration.

Medicare graduate medical education funding and rural hospitals.

To assess the importance of medical residents to rural hospitals, and to predict the possible effect of reductions in Medicare graduate medical education (GME) payments, data from Medicare hospital cost reports and from a telephone survey of rural hospitals with residency programs are analyzed. In prospective payment system year 11, 70 rural hospitals received more than $80 million in Medicare GME payments. The presence of rural training programs enhanced staff physician recruitment and retention and led to increased numbers of physicians settling in communities surrounding the facilities. Many survey respondents felt that elimination of GME funds would results in downsizing or outright elimination of their training programs. The results support the contention that rural training programs are important to hospitals and their surrounding communities and provide an essential component of the physician supply pipeline to rural areas.

Critical access hospitals: how many rural hospitals will meet the requirements?

Although the Medicare Rural Hospital Flexibility Program (MRHFP), which establishes a new designation for limited-service hospitals called critical access hospitals (CAH), intends to assist small rural hospitals having financial difficulty, it is unclear how many hospitals will qualify for the program. Potential CAHs are identified and the strategic issues that will impact actual participation in the program are discussed. Potential CAHs are identified by applying the legislative criteria for designation to a data set created from both the 1992-1995 Medicare Hospital Cost Report Information System and the 1993 and 1995 Prospective Payment System's Impact files. Descriptive analyses are used to identify potential CAHs by three parameters: distance to nearest hospital, average daily census and operating margin. Results indicate that the majority of potential CAHs have low volume and report poorer operating margins than other rural hospitals. Findings also show that the mileage requirements significantly impact the number of potential CAHs. There is more than a ninefold difference between the 93 hospitals that meet the mileage criterion and the 864 hospitals that might be eligible if certified by the state as "necessary providers," regardless of distance to the nearest hospital. The MRHFP is designed to prevent small, isolated hospitals from closing and thus to ensure continued access to care for rural residents. However, the number of potential CAHs that participate will clearly hinge on the flexibility of the program and the ability of states to determine "necessary providers."

Exploring the Relationship Between Inpatient Facility and Physician Services

Medicare hospitalizations involve both facility and physician services. Although several studies analyze hospital-level variations in Medicare inpatient facility and inpatient physician services per admission, few studies directly explore the relationship between these services. Theoretically, inpatient facility and physician services may be complements or substitutes. That is, an increase in facility services may lead to an increase or decrease in physician services and vice versa. This article contributes to the existing literature by exploring directly the relationship between facility and physician services. Medicare physician claims were linked to inpatient hospital stays using data from the Medicare hospital cost reports, the Medicare Patient Analysis and Review file, and the Medicare National Claims History System. In multivariate regression analyses, the (partial) correlations between facility and physician services were positive, which is consistent with complementarity. Standardized regression coefficients indicate that physician services are the single most important determinant of facility services; however, facility services are a less important determinant of physician services. A 10% increase in physician services is associated with at least a 3.0% increase in facility services. Proposals that reduce inpatient physician expenditures also would reduce facility expenditures in the long-run.

The Case for Policy Change

Objectives. —To determine the magnitude and distribution of US Medicare funding for nursing education and to assess the extent to which Medicare funding contributes to meeting national health care workforce priorities. Data Sources. —Medicare Hospital Cost Report Information System, American Hospital Association Annual Survey of Hospitals, and National League for Nursing national surveys of schools of nursing. Data Analysis. —Using hospital identifiers, data from three data sets were merged and analyzed to estimate percentage distributions of Medicare funding according to types of educational programs, hospital characteristics, and student enrollment. Results. —Fifteen percent of direct Medicare graduate medical education funding goes to hospitals for the training of nurses and paramedical personnel. Totaling approximately $174 million in 1991, 71% of these funds went to hospitals for nursing education costs. Most of the nation's teaching hospitals (289 of 381 Council of Teaching Hospitals member hospitals) and nurse education programs (1112 of 1484) do not qualify under existing policies for Medicare nursing education reimbursement. Sixty-six percent of Medicare nurse training funds, totaling $114 million in 1991, went to 145 hospitals operating diploma nursing programs; these programs produce less than 10% of nurse graduates. Three states (Pennsylvania, New Jersey, and Ohio) received nearly one half (48%) of the $114 million for diploma nursing education. Conclusions. —Medicare is the largest single source of federal support for nursing education. Yet, the majority of Medicare nursing education funding goes to hospitals affiliated with an increasingly smaller, idiosyncratic subset of nurse training programs. Unlike graduate medical education, Medicare supports primarily preprofessional education in nursing. Graduate education, including the preparation of nurse practitioners, does not generally qualify for reimbursement. Medicare reimbursement for nursing education must be retargeted. (JAMA. 1995;273:1528-1532)

Measuring hospital efficiency with frontier cost functions

This paper uses a stochastic frontier multiproduct cost function to derive hospital-specific measures of inefficiency. The cost function includes direct measures of illness severity, output quality, and patient outcomes to reduce the likelihood that the inefficiency estimates are capturing unmeasured differences in hospital outputs. Models are estimated using data from the AHA Annual Survey, Medicare Hospital Cost Reports, and MEDPAR. We explicitly test the assumption of output endogeneity and reject it in this application. We conclude that inefficiency accounts for 13.6 percent of total hospital costs. This estimate is robust with respect to model specification and approaches to pooling data across distinct groups of hospitals.