Data Trends

Federal lawmakers have created and modified special payments categories under the Medicare program to address the challenges faced by different types of rural hospitals. There are currently four classifications of rural hospitals that can qualify for special payment provisions under Medicare: critical access hospitals (CAHs), Medicare dependent hospitals (MDHs), sole community hospitals (SCHs), and rural referral centers (RRCs). This analysis compares the profitability of urban and rural hospitals paid under the inpatient prospective payment system (PPS) with that of rural hospitals with special Medicare payment provisions over a recent three-year period.

Rural referral centers had consistently the highest profitability compared with hospitals with other payment classifications. In all three years, total margins were highest, on average, among RRCs or RRC/SCHs. These two groups also had the lowest percentage of hospitals with a negative total margin.

Exhibit 1


Rural hospitals paid under PPS with fewer than 26 beds and those with 26 to 50 beds had the lowest profitability compared with hospitals with other payment classifications. In all three years, total margins, on average, were lowest in these two groups of hospitals, which also had the highest percentage of hospitals with negative total margins.

Across all hospital payment classifications, profitability fell between 2007 and 2009. Total margin and the percentages of hospitals with negative total margins worsened between 2007 and 2009.

Exhibit 2  


This study was produced by the North Carolina Rural Health Research & Policy Analysis Center, Cecil G. Sheps Center for Health Services Research. Project data came from the CMS Hospital Cost Report Information System (HCRIS). Longitudinal files were created that included all of the Medicare cost report worksheets required for provider identification and calculation of financial indicators. The financial indicator definitions and Medicare cost report account codes for them were verified with a technical adviser and compared with other sources of financial ratios. An analytical file with the Medicare cost report data was created for each hospital with at least 360 days in a cost report period. There were missing data for some indicators for some hospitals; therefore, the number of hospital cost reports used to calculate an indicator median was sometimes less than the total number of hospital cost reports. This study was funded under a cooperative agreement with the Federal Office of Rural Health Policy (ORHP), Health Resources and Services Administration, U.S. Department of Health and Human Services, Grant Number U1GRH07633. The conclusions and opinions expressed in this paper are the authors' alone; no endorsement by the University of North Carolina, ORHP, or other sources of information is intended or should be inferred. For more information, contact George H. Pink, PhD, Humana Distinguished Professor, Department of Health Policy and Management, University of North Carolina at Chapel Hill, at

Publication Date: Friday, April 01, 2011

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