Medicare Hospital Payment

Medicare's prospective payment system (PPS) comprises several policies intended to help rural hospitals. There are major special payment provisions enacted to adjust Medicare payments to rural hospitals. Despite these provisions, rural hospitals, on average, have not fared as well as their urban counterparts under PPS. GAO provided information on the inventory of the major special payment provisions available to rural hospitals under (PPS) and the inpatient financial performance of these hospitals under PPS. Two-thirds of rural hospitals obtain some sort of special status to modify their Medicare PPS payments. The rural hospitals with special designations generally have fared better than other rural hospitals. Although as a group, they have still experienced consistently poorer financial performance under Medicare's PPS than have urban hospitals. There is considerable variation in performance behind this average, and many rural hospitals operate at a loss in providing Medicare inpatient services.

GAO noted that: (1) Medicare has implemented a variety of inpatient payment policies that have the effect of increasing payments under PPS to certain rural hospitals; (2) two-thirds of rural hospitals obtain some sort of special status to modify their Medicare PPS payments; (3) rural hospitals with special designations generally have fared better than other rural hospitals, although as a group they have still experienced consistently poorer financial performance under Medicare's PPS than have urban hospitals; and (4) there is considerable variation in performance behind this average, and many rural hospitals operate at a loss in providing Medicare inpatient services.