Financial Impact of Outpatient Payment Reform on Rural Hospitals

Research center:
Lead researcher:
Penny Mohr, MS, 301.656.7401
Project completed:
February 2001
The Balanced Budget Act of 1997 requires that Medicare hospital outpatient services be reimbursed on the basis of a prospective payment system. Impact analysis by the Health Care Finance Administration (HCFA) has suggested that small rural hospitals may face greater payment declines under outpatient prospective payment systems than other hospitals; however, data quality issues raise the concern that there may be a systematic bias in HCFAs analyses. We examine the theory that small hospitals may have been more likely to have poor quality data and higher costs per service. Thus, not only would they be more likely to be omitted from HCFAs simulation, the median costs estimated for payment may be underestimated as a result. We examine 1998 Medicare outpatient claims for a sample of approximately 1100 urban and rural hospitals linked to other hospital-level files and compare the quality of claims filed by rural and urban hospitals. Quality is assessed by the availability of the necessary diagnosis and procedure codes to enable us to classify claims into payment groups. Average costs per service are estimated by using Medicare cost reports. Study findings should enable policymakers to better understand what role bill coding has on how outpatient PPS impacts rural - especially small rural - hospitals.