Interactive model

Can this hospital survive on Medicare rates?

Commercial insurers pay hospitals more than Medicare does. This tool estimates how a hospital’s finances would change if all payers paid Medicare rates, and how much of the resulting shortfall the hospital could close through restructuring.

Select a hospital and a policy scenario, then test the responses available to the hospital and review their effects.

Begin

The typical hospitals shown are illustrative benchmarks, not actual institutions, and the size of each response reflects analyst judgment rather than measurement.

Community hospital, all payers at Medicare rates

Operating margin

 

Cash reserves over 10 years

 

Operating margin  
Share of gap closed
Years of cash reserves  
Employment (FTE)  

Step 1

Select a hospital

Each card describes a typical hospital of its kind. Commercial share is the portion of care paid for by commercial insurers, which pay the most relative to Medicare.

Effect of Medicare payment rates

Operating margin baseline → at Medicare rates
Annual shortfall
Cash exhausted in with no response
Annual revenue by payer
Adjust hospital characteristics

Changes to these characteristics update all results below. The baseline operating margin is held constant by adjusting commercial payment rates.

Step 2

Choose a policy scenario

Select a preset scenario, then adjust its parameters. Paying Medicare’s prices does not by itself remove each insurer’s separate rules, so the reduction in payer administrative requirements is a separate parameter.

Payers paid at Medicare rates

Step 3

Test hospital responses

The restructuring levers below are actions a hospital could take to close the gap. Each is sized as a percentage of the cost or revenue to which it applies. Levers are applied in the order listed, each to the cost base that remains after the previous ones, so no savings are counted twice.

Selected combinations:

Results

Estimated results

Operating income from baseline to end state

Annual operating income once every selected change is fully in effect. Blue bars increase operating income and red bars decrease it.

Cash reserves over ten years

Days cash on hand is the number of days of operating expense that the hospital could pay from reserves. Many bond agreements require a minimum of 60 days.

Effects of the selected responses

Notes on interpretation

The model begins with a hospital’s baseline revenue and costs, reprices the selected payers to Medicare rates, and then applies the selected responses in order. Annual operating gains are shown at full effect; the cash chart phases them in over ramp-up periods and includes the one-time costs of implementing them.

The gap is the operating income lost when payment rates change. The share of the gap closed is the portion recovered by the selected responses. All figures are in constant dollars.

The typical hospitals shown are illustrative benchmarks, not actual institutions, and the size of each response reflects analyst judgment rather than measurement. Results indicate direction and magnitude and are not forecasts for any institution.