Did recent changes in Medicare reimbursement hit teaching hospitals harder?

To inform the policy debate on Medicare reimbursement by examining the financial effects of the Balanced Budget Act of 1997 (BBA) and subsequent adjustments on major academic medical centers, minor teaching hospitals, and nonteaching hospitals.

The authors simulated the impacts of BBA and subsequent BBA adjustments to predict the independent effects of changes in Medicare reimbursement on hospital revenues using 1997-2001 Medicare Cost Reports for all short-term acute-care hospitals in the United States. The authors also calculated actual (nonsimulated) operating and total margins among major teaching, minor teaching, and nonteaching hospitals to account for hospital response to the changes.

The BBA and subsequent refinements reduced Medicare revenues to a greater degree in major teaching hospitals, but the fact that such hospitals had a smaller proportion of Medicare patients meant that the BBA reduced overall revenues by similar percentages across major, minor, and nonteaching hospitals. Consistently lower margins may have made teaching hospitals more vulnerable to cuts in Medicare support.

Recent Medicare changes affected revenues at teaching and nonteaching hospitals more similarly than is commonly believed. However, the Medicare cuts under the BBA probably exacerbated preexisting financial strain on major teaching hospitals, and increased Medicare funding may not suffice to eliminate the strain. This report's findings are consistent with recent calls to support needed services of teaching hospitals through all-payer or general funds.