Impact of the Proposed Medicare Prospective Payment Reforms on Rural Hospitals in Selected States

As a result of the Balanced Budget Act, three new prospective payment systems (PPS) have recently been introduced for services used by Medicare beneficiaries. New payment systems covering outpatient services, home health services, and skilled nursing facility services may adversely impact the financial health of hospitals and communities they serve. This project characterizes hospitals and communities that are likely to be financially vulnerable to the proposed payment reforms. We establish a baseline measure of financial health to study rural hospitals located in West Virginia, Washington, Texas, and Iowa. We simulate effects of the new outpatient PPS, examine the home health and skilled nursing payment systems, and assess expected financial health after implementation of the new PPS. We characterize hospitals that are financially impacted, and identify vulnerable communities, especially those negatively impacted by the three new payment systems.

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