By Jeffrey H. Brochin, J.D.
Changes have occurred in the number of Medicare-Dependent Hospitals (MDHs) and selected metrics over time, with the result that the MDH designation has a relatively small financial benefit compared to most of the other rural hospital designations.
The U.S. Government Accountability Office (GAO) has issued a report to Congress on information gathered on MDHs and the financial benefit to some small, rural hospitals with high shares of Medicare patients. From fiscal years 2011 through 2017, the number of MDHs declined by around 28 percent, and in addition, the number of MDHs that received an additional payment declined by around 15 percent. In fiscal year 2018, CMS paid approximately $119 million in additional payments to MDHs (GAO Report, GAO-20-300, February, 2020).
Determining MDH qualification. CMS operates the MDH program which assists hospitals that have 60 percent or more of inpatient days or discharges from Medicare patients, and that have 100 or fewer beds, and that are generally located in a rural area. MDHs receive an additional payment if their historic costs in one of three base years adjusted for inflation, among other things, are higher than what the hospital would have otherwise received under the inpatient prospective payment system (IPPS). In contrast, if the IPPS amount was higher than historic costs, the MDH would receive no additional payment.
Why GAO conducted the study. The MDH program was enacted in 1989 in order to provide financial benefit to some small, rural hospitals with high shares of Medicare patients. The original MDH program was established by legislation for 3 years, and Congress has extended it on several occasions. The Bipartisan Budget Act of 2018 included a provision to extend the MDH program through 2022, as well as a provision for GAO to review the MDH program. Based on that mandate, the GAO prepared the instant report to describe, among other things, the changes that have occurred in the number of MDHs and selected metrics over time.
How the study was conducted. The GAO analyzed data submitted to CMS by hospitals from fiscal years 2011 through 2017—the most recent year for which consistent data were available at the time of the GAO’s analysis—among other CMS data. The GAO also reviewed CMS regulations and other agency documents. To describe changes in the number and select metrics of MDHs and other hospital types, the GAO examined Medicare Cost Report (MCR) data for fiscal years 2011 through 2017. To first identify the universe of MDHs, rural hospitals, and all acute care inpatient prospective payment system (IPPS) hospitals, the auditors used the Provider Specific File (PSF) and MCR for fiscal years 2011 through 2017, as well as CMS Impact Files for fiscal years 2012 through 2018. The MCR as then used to calculate the number of MDHs that received the MDH payment adjustment and the distribution of additional payments among MDHs in each year. Using those same data sources, the GAO then calculated several metrics and examined trends for MDHs as compared to all rural hospitals and all hospitals overall.
What the study found. The report found that some but not all, MDHs were eligible to receive additional payment each year if they met the payment criterion. Specifically, MDHs were assigned a payment rate—known as the hospital-specific rate (HSR)—based on their historic reported inpatient operating costs, trended forward to adjust for inflation and other factors, from one of three years (1982, 1987, or 2002). If the payment based on the HSR was higher than what the MDH would have otherwise received under IPPS, the MDH received an additional payment. In that case, the MDH additional payment was calculated as 75 percent of the difference between the HSR and the IPPS amount. But if the IPPS amount was higher than the HSR, the MDH received no additional payment.
The report concluded that MDH designation has a relatively small financial benefit compared to most of the other rural hospital designations, and the benefit only applies to costs associated with inpatient services. Furthermore, while MDHs generally can only receive 75 percent of the difference between payment based on their HSR and the payment they would have otherwise received based on the IPPS rate as an additional payment added to their IPPS rate payment, in contrast, the Sole Community Hospital (SCH) and Critical Access Hospital (CAH) designations have both inpatient and outpatient payment benefits. Hospitals with an SCH designation can receive an additional payment added to their IPPS rate payment equal to 100 percent of the difference between payment based on the HSR and what the hospital would otherwise receive as payment based on the IPPS rate.
No recommendations. Unlike most GAO reports to Congress, this report served informational purposes only, and did not recite a recommendation as to its findings.
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