Payment Trends

47 hospitals have closed in 2019, MedPAC reports

December 10, 2019 4:32 pm
  • The 47 hospitals that have closed in 2019 were mostly small and located in Medicaid non-expansion states.
  • The closures come as Medicare margins remain near record lows.
  • The closures were driven by excess patient capacity and reductions in patient volumes, according to MedPAC.

Hospital closures tracked by a congressional advisory panel reached 47 by early December more than double the total for 2018.

The Medicare Payment Advisory Commission (MedPAC) revealed its tracking of hospital closures — possibly the only national tracking effort — at its Dec. 5 public hearing.

Findings included annual totals for recent years:

  • 28 closures in 2015
  • 21 closures in 2016
  • 16 closures in 2017
  • 23 closures in 2018
  • 47 closures in 2019

The totals included short-term acute care hospitals and critical access hospitals.

Karen DeSalvo, MD, a MedPAC commissioner, wondered whether the increasing number of closures could be a leading indicator that Medicare payment rates for hospitals are insufficient.

But MedPAC staff downplayed the significance of the closures, noting some of the hospitals continued to offer other services after ending their inpatient services and some planned to reopen.

Most of the closed hospitals “struggled with low occupancy, were small and within 15 miles of another hospital, suggesting most had a minimal effect on beneficiaries’ access to care,” a MedPAC staff member said.

However, two hospitals that closed in recent years were more than 35 miles from the next closest hospital.

“This suggests that targeted policies may be needed to help ensure access,” the MedPAC staff member said.

MedPAC previously recommended a policy to allow isolated rural hospitals with low inpatient volumes to convert to stand-alone emergency departments.

Factors that MedPAC staff cited as contributing to hospital closures included:

  • Excess inpatient capacity
  • Decreases in patient volumes
  • Lack of Medicaid coverage expansion

Rural hospital closures also tracked

Most of the closures likely are nonrural hospitals, given that closures among such hospitals have totaled only 18 so far in 2019, according to a tracker by the Cecil G. Sheps Center for Health Services Research at the University of North Carolina at Chapel Hill.

Although rural hospital closures have not spiked this year, according to the Sheps Center, they have steadily increased in recent years.

Additionally, more than 600 rural hospitals are vulnerable to closure, according to an estimate from iVantage Health Analytics.

MedPAC staff analyzed Medicare cost reports and determined that rural hospitals have average occupancy rates of 41.1%, compared with 66.8% for urban hospitals and 63.3% for all hospitals.

Among hospitals that closed this year and in 2018, the average occupancy rate was 26% and the average bed count was 106.

No recommendation made on payment rates

Although Medicare payment rates were downplayed as a financial challenge for hospitals, commissioners examined the possibility of recommending more-robust rate increases. They initially considered a 2% increase, plus a 0.8% add-on payment for hospitals that meet proposed quality standards — compared with a total increase of 2.6% as finalized for 2020. The proposed update would be the largest for hospitals since 2012, according to MedPAC staff.

But since they were unable to agree on what the rate would be if Congress failed to implement the proposed quality program, the panel put off its rate recommendation until January. (Congress chartered MedPAC to suggest Medicare provider rates to the Centers for Medicare & Medicaid Services.)

Overall, MedPAC found that among the 4,700 Inpatient Prospective Payment System hospitals paid by Medicare, the financial situation improved in recent years, with overall Medicare margins improving from -9.9% in 2017 to -9.3% in 2018. Medicare margins were worse among urban (-9.6%) than rural (-6.6%) hospitals and significantly worse at not-for-profit (-10.6%) than for-profit (-0.9%) hospitals. Overall hospital Medicare margins were projected to improve to -8% in 2019.

The median all-payer margin for hospitals was 5%, fueled by a 9% non-Medicare margin, according to MedPAC’s analysis. MedPAC also concluded that for-profit hospitals reached a record-high all-payer margin of 11.3%.

Some MedPAC commissioners said the negative Medicare margins were fueling hospitals’ purchases of area physician practices and enrollments in the 340B discount drug program, which was credited as a major source of hospital revenue.

“They’re doing it to be sustainable,” said Warner Thomas, a MedPAC commissioner and the president and CEO of Ochsner Health. “If we want to exacerbate continued consolidation of practices and consolidation of hospitals, then we [MedPAC] will continue to limit the update factor.”



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