For the Office of Rural Health Policy, NORC completed a rapid response project examining the impact the phase-out of Medicare bad debt reimbursement might have on rural prospective payment system (PPS) hospitals, a proposed component of the President’s 2007 Fiscal Year (FY) budget.  Rural hospitals generally are at greater risk for bad debt, with larger proportions of rural residents living below the poverty line or without health insurance.  In addition, rural hospitals tend to be too small to offer the more lucrative services and programs that might offset financial losses.  

NORC simulated the financial effect of the elimination of bad debt reimbursement using data from the 2005 Medicare Cost Reports and the 2005 Hospital Inpatient PPS Payment Impact File.  By comparing hospitals’ 2005 total Medicare reimbursement to estimates of reimbursement if the bad debt policy had not been in place, NORC was able to calculate the percentage change in total Medicare reimbursement.  Ten 45-minute semi-structured interviews were also conducted with hospital CFOs and CEOs to collect information regarding how these hospitals handled bad debt accounts and what changes they planned to make in response to changing policy. The quantitative analysis was coupled with the interviews in order to assess how the loss of Medicare bad debt reimbursement might affect and change rural PPS hospitals.  

The study concluded that the elimination of Medicare bad debt reimbursement likely would impact rural hospitals adversely.  In addition, although Medicare beneficiaries would seem to be the patients most hurt by the policy, other hospital patrons also would suffer from decreased services, as hospitals might be forced to cut programs and services in order to stay afloat.  

Related publications

Sutton, J., Kennedy, A., Hammer, L. and Yang, G. 2007. "How Will Elimination of Hospital Bad Debt Reimbursement Affect Rural PPS Hospitals?" NORC Walsh Center for Rural Health Analysis Policy Brief. W Series, No. 11.  (153K)