Congress changed how hospitals are paid by Medicare in the 1980s to a more "standardized and averaged payment methodology," known as the prospective payment system, McBeath writes. Previously, Medicare paid for cost of services in individual hospitals. That system catered more to urban, high volume hospitals and didn't consider the unique ways in which rural hospitals operate, McBeath says. "They often have a narrower financial margin than urban hospitals. Few rural hospitals provide more profitable advanced services and medical procedures to offset losses in other areas such as emergency care."
Operating costs in rural hospitals can be slightly higher in general because of low patient volume, swings in patient numbers, and difficulty in staff recruitment which can increase payroll costs. Congress tried to address these issues in several ways, McBeath writes. It was decided that spending a little more was worth it to keep rural hospitals open, so programs like Critical Access Hospitals and Sole Community Hospital designations were created to give small, low volume hospitals more in Medicare payments.
Now, Congress has to make budget cuts, and the "situation is dangerous for rural areas because most members of Congress were not around when many of the rural hospital provisions were created," McBeath writes. That is "helping drive talk of eliminating some of the provisions." (Read more)