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Analysis: Medicare-Dependent Hospitals on the Decline

Published March 5, 2020

The number of Medicare-dependent hospitals (hospitals that treat a disproportionately high amount of Medicare patients) declined 28 percent from 2011 to 2017, according to a recent report from the Government Accountability Office (GAO).1

The GAO analysis found that the number of Medicare-dependent hospitals dropped from 183 in 2011 to 139 in 2017. 

What are Medicare-dependent hospitals?

The Medicare-dependent hospital (MDH) program was created in 1989 to provide financial support to smaller and more rural hospitals where:

  • Medicare patients make up at least 60 percent of the inpatient days or discharges
  • There are 100 or fewer beds
  • The hospital’s location is generally more rural

The program was recently extended through 2022 as part of the Bipartisan Budget Act of 2018.

Rural hospitals face financial problems

Many rural hospitals struggle to stay afloat financially operating as standalone facilities with no additional support from Medicare or other state or federal programs.

Some hospitals that lost their MDH designation during the GAO study period because they failed to meet eligibility standards concerning the volume of Medicare patients treated or the number of beds in the facility. Others lost MDH status because of mergers or closures. 

Additional findings from the GAO analysis include:

  • Approximately 15 fewer percent of participating hospitals received a payment from the MDH program during the study period, despite maintaining eligibility.

  • MDH profit margins fell nearly two percentage points during the study period and turned the overall margin from a slight positive to a slight negative.

  • Medicare profit margins at MDH facilities fell by six percent, which was three percentage points higher than the corresponding decline at all hospitals.

  • Medicare revenue at MDH facilities dropped 13 percent during the study period, compared to 10 percent for all hospitals.

Medicare offers four additional designations for hospitals: critical access hospital, sole community hospital, low-volume adjustment hospital and rural referral center. Each designation earns the hospital financial support for treating Medicare patients. 

But while the four programs above are permanent, the MDH program is temporary and must be periodically renewed by Congress to continue – which has occurred consistently since 1989.

Medicare Part A offers inpatient hospital coverage

Medicare Part A offers hospital insurance and covers some of the costs of inpatient care at hospitals and skilled nursing facilities (SNF).

Learn more about Medicare hospital observation coverage and other Medicare Part A inpatient benefits.