Eliminating Medicare bad debt payments: are critical access and rural hospitals at risk?

While Medicare Allowable Bad Debt (MBD), defined as unpaid patient financial obligations Medicare partially reimburses to hospitals, represents only 0.12% of patient revenue, policymakers and executives should note the $1.7 billion reimbursed in 2022 affects hospitals of different types in various ways (see Appendix 1). The recent passage of the One Big Beautiful Bill Act did not eliminate MBD, but elimination has been proposed, supporting a need to understand what elimination could do to hospitals.

Using Medicare Cost Reports, we conducted a retrospective, longitudinal analysis of short-term general acute-care hospitals in 2022.Total margin was evaluated with and without MBD by Critical Access Hospital (CAH), rurality, state, and Hospital Referral Region.

Elimination of this reimbursement would have impacted many hospitals; though findings highlight more adverse impacts on CAHs (accounting for a 0.3% point [PP] reduction in total margin), other rural hospitals (a 0.25PP reduction), states like Nevada (a 0.48PP reduction), and certain HRRs around the Appalachia region and parts of Texas.

Elimination of MBD may further jeopardize financial solvency for some rural hospitals that provide access to acute care across America's vast (mostly rural) land mass, particularly in rural and underserved communities.