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Cash Flow of Small Rural Hospitals: The Impact of the Medicare Outpatient Prospective Payment System
Medicare s new outpatient prospective payment system (OP-PPS) is expected to have significant repercussions for hospitals, especially small rural hospitals. Currently, rural hospitals with fewer than 100 beds are protected from financial loss by a temporary "hold harmless" provision of the Balanced Budget Refinement Act. However, concern remains that outpatient payment reform will not only threaten the long term financial health of small rural hospitals but will adversely affect their cash flow position in the short term. The objective of this research is to characterize the cash flow position of small rural hospitals prior to OP-PPS and estimate the expected changes in cash flow positions as a result of OP-PPS if the "hold harmless" provision were not in effect. The principal sources of data for this study are hospital-audited financial statements for fiscal years 1997 and 1998 for short-term acute care hospitals located in Iowa, Texas, Washington, and West Virginia. Although these states are not nationally representative, they have relatively large rural populations and diverse health care infrastructures. Bivariate analysis is used to assess the impact on cash flow. By anticipating the impact on cash flow while the "hold harmless" rule is in effect, this study alerts policymakers to unintended consequences of OP-PPS for rural hospitals.
Publications
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Financially Distressed Rural Hospitals In Four States
Report Number: Policy Analysis Brief W Series No. 2
Date: 01 / 2004
The effect of the outpatient prospective payment system (OPPS) on the financial performance of rural hospitals was simulated in four states-Iowa, Texas, Washington, and West Virginia. Findings suggest that the profitability and cash position of small, government-owned, and Medicare-dependent hospitals will be adversely impacted by the OPPS. Results also suggest that the number of financially distressed rural hospitals will increase significantly. The small rural hospitals currently protected by the hold harmless provision are those most likely to be hardest hit by OPPS.
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Will the Outpatient Prospective Payment System Increase the Number of Distressed Rural Hospitals in Iowa, Texas, Washington, and West Virginia?
Date: 01 / 2001
Simulates the financial impact of the outpatient prospective payment system rates and estimates the number and type of rural hospitals in the five states likely to become financially distressed as a result of its implementation. Results clearly suggest that the outpatient PPS will have a significant negative impact on the profitability and cash position of many rural hospitals, especially those that are small, government owned, and classified as Medicare dependent. The results also suggest that this negative impact may lead to a significant increase in the number of financially distressed rural hospitals. Given these findings, a permanent exemption to outpatient prospective payment to small hospitals may be a policy alternative that would benefit rural communities and cost the Medicare program relatively little. Report available on request.
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