Profitability in Rural Hospitals

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The North Carolina Rural Health Research Program recently released Profitability in Rural Hospitals, authored by George H. Pink, PhD; Victoria Freeman, RN, DrPH; Randy Randolph, MRP; and G. Mark Holmes, PhD. This new findings brief compares the profitability between 2010 and 2012 for urban and rural hospitals paid under the Medicare Prospective Payment System (PPS), a federal program introduced in 1983 that pays hospitals a predetermined rate for each Medicare admission according to a patient’s classification into a Diagnosis Related Group (DRG). Except for certain patients with exceptionally high costs (called outliers), these hospitals are paid a flat rate for the DRG, regardless of the actual services provided.

There are currently four classifications of rural hospitals that qualify for special payment provisions under Medicare. They are Critical Access Hospitals (CAHs), Medicare Dependent Hospitals (MDHs), Sole Community Hospitals (SCHs), and Rural Referral Centers (RRCs). Some hospitals may have more than one designation.

There are three key findings:

  • Urban hospitals paid under PPS, and Rural Referral Centers, had consistently the highest profitability in comparison to hospitals with other payment classifications.
  • Rural hospitals paid under PPS, and Critical Access Hospitals, generally had the lowest profitability in comparison to hospitals with other payment classifications.
  • Across all hospital payment classifications, profitability improved between 2010 and 2012.

The brief concludes that the hospitals under the greatest financial pressure have greater risk of closing, and warrant the greatest concern by policy makers and those concerned with access to hospital care by rural residents. It does not investigate the reasons for the poor profitability, but they could include patient volume, payer mix, geographic location, or the payment mechanism itself.

Read the Findings Brief.