Medicare Public Option Would Harm Rural Hospitals, Study Finds
Rural hospitals would lose significant revenue under a Medicare public option, with more than half of the facilities facing a high risk of closure, Navigant reports.
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By - As many as 55 percent of rural hospitals – or 1,037 hospitals – would be at a high risk of closure under a Medicare public option, revealed a recent analysis conducted by Navigant Consulting on behalf of the Partnership for America’s Healthcare Future.
“Even those rural hospitals not at high risk of closure and the communities they serve face an increased threat,” the consulting firm stated. “The availability of a public option could negatively impact access to and quality of care through rural hospitals’ potential elimination of services and reduction of clinical and administrative staff, as well as damage the economic foundation of the communities these hospitals serve.”
In the analysis, Navigant tested three options for extending access to Medicare through public health exchanges: zero lives covered by employer-sponsored plans move to a public option, 25 percent of lives covered by employer-sponsored health plans move to the public option, and half of lives covered by employer-sponsored health plans move to the public option.
The analysis uncovered that financial harm to rural hospitals would range from $4.2 billion nationally if only the uninsured and current individual market participants move to the public option to $25.6 billion under the most comprehensive Medicare public option.
The former scenario would place approximately 28 percent of rural hospitals at high risk of closure, while shifting between 25 percent of individuals covered by employer-sponsored plans would cause an estimate 51 percent of rural hospitals to face high risk of closure, Navigant reported.
An additional 39 to 41 percent of rural hospitals would also experience a moderate risk of closure if employers shift between 25 and 50 percent of covered lives to a Medicare public option.
As a whole, rural hospitals would face significant financial harm under any Medicare public option because of Medicare reimbursement rates, Navigant explained.
The government-run program underpays hospitals for treating beneficiaries. According to the most recent data from the American Hospital Association (AHA), Medicare reimbursement was $53.9 billion short of actual hospital costs in 2017.
The Medicare shortfall particularly hurts rural hospitals, which have a negative 8.2 percent operating margin on Medicare patients, on average, according to the Medicate Payment Advisory Commission (MedPAC).
Medicare would have to boost hospital reimbursement rates by 40 to 60 percent above current payment levels to protect rural hospitals from the negative financial consequences of a Medicare public option, Navigant reported.
The increase in hospital reimbursement would cost the government between $4 billion and $25 billion annually depending on the leakage of lives covered by employer-sponsored plans to the public option, the consulting firm added.
Overall, hospitals stand to lose revenue under any Medicare public option. The policy proposals aim to reduce national healthcare spending – which is slated to reach $6 trillion, and over 19 percent of gross domestic product, by 2027 – by reducing hospital reimbursement to or close to Medicare payment levels.
Hospital reimbursement would fall by $774 billion over a ten-year period if the government implemented a Medicare public option, estimated one study prepared by KNG Health Consulting on behalf of the AHA and Federation of American Hospitals (FAH).
Another recent analysis in JAMA estimated hospitals to lose as much as $151 billion in annual revenues, or 16 percent, under a Medicare for All policy.
The loss in revenue is concerning for rural hospitals, of which 21 percent are already at a high risk of closure, according to separate Navigant analysis.
Many of the Medicare public option proposals acknowledge the financial struggle hospitals would face if the facilities received lower reimbursement rates. Some of these proposals address the issue by proposing to pay hospitals at rates higher than Medicare and some even carve out exceptions for rural hospitals.
For example, a Medicare public option proposal introduced by Representative Pramila Jayapal would replace Medicare reimbursement rates with a system of regional budgets, The New York Times reported.
How a Medicare public option would impact hospitals and the healthcare system at large relies heavily on the type of public option implemented. As shown in the Navigant analysis, hospital revenue would drop under a range of Medicare public options, but by how much hinges on the amount of leakage from employer-sponsored health plans.
