Hospital finance analysis

What happens to hospitals if every payer pays Medicare rates?

Commercial insurers pay hospitals considerably more than Medicare does, and many hospitals depend on that difference. This project estimates the size of the resulting shortfall for individual hospitals and how much of it could be closed through changes within the hospital’s control.

Open the interactive tool Read the national findings

Purpose of this analysis

Commercial insurers pay hospitals substantially more, per unit of care, than Medicare does. For many hospitals that difference is the margin that covers the shortfall on Medicare and Medicaid patients and funds investment.

Proposals to set all hospital payment at Medicare rates would remove that margin. This project models the size of the resulting shortfall for individual hospitals, using the Medicare cost reports hospitals file each year.

It then tests how much of the shortfall could be closed through changes in staffing, compensation, administrative overhead, purchasing and capital spending, and which of those changes a hospital can make on its own and which depend on competitors, labor markets or public policy.

Key findings

Computed from the model run on every usable hospital in the national data.

Explore the work

Interactive toolSelect a typical or specific hospital, choose a policy scenario, and test responses to estimate whether the hospital can reach break-even.Open the tool National findingsResults for every modeled hospital, by hospital type, ownership, and state, under each policy scenario and response scenario.Read the findings Illustrative hospital reportA detailed analysis of a typical community hospital, including the range of outcomes across restructuring choices.Read the report Appendix A: Restructuring leversEach restructuring lever defined and sized at three levels, with its principal risks and the party that must act.Open Appendix A Appendix B: MethodologyThe equations and sequence of calculations behind the results.Open Appendix B Appendix C: Data sources and assumptionsWhich inputs come from cost reports, which are assumed, and the degree of confidence in each.Open Appendix C

How to interpret the results

  • Hospital data are from the fiscal year 2023 Medicare cost reports.
  • Medicare’s payment-to-cost ratio is a single assumed value, not a measurement for each hospital.
  • Each hospital’s payer mix is estimated from discharges, not reported.
  • The size of each response is analyst judgment.
  • Results indicate direction and magnitude. They are not forecasts for any institution.

See Appendix C for the full list of data sources and assumptions.