Hospital finance model · national analysis
Estimated effects of Medicare payment rates on 3,574 U.S. hospitals
This analysis applies the model to every short-term acute care and critical access hospital with a usable fiscal year 2023 Medicare cost report. Together the hospitals report $1.20 trillion of annual operating expense. The central policy scenario is All payers at Medicare.
Key findings
- Operating margins. At baseline, 72 percent of hospitals have an operating margin at or above zero. Under the All payers at Medicare scenario with no response, the model estimates that 22 percent would. Combined operating income would change from $105.3 billion to −$103.2 billion per year.
- Response scenarios. Under the conventional turnaround scenario, 29 percent of hospitals reach break-even. Under aggressive restructuring, which includes compensation reductions for all staff, 49 percent do, and under system redesign, 92 percent.
- Coverage of the uninsured. Under the single payer scenario, which also moves uninsured patients to Medicare rates, 32 percent of hospitals break even with no response and 88 percent after aggressive restructuring.
- Break-even payment level. The median hospital breaks even at a payment level of 1.25x Medicare with no cost changes and at 1.01x after aggressive restructuring.
- Critical access hospitals. In the model, critical access hospitals are paid at cost by every payer that pays Medicare rates, which limits the estimated effect of the policy and of cost reductions on their operating margins.
Distribution of operating margins
Each bar in Figures 1 and 2 shows the number of hospitals with an operating margin in the indicated range. Values beyond the ends of the axis are included in the last bar on each side.
Figure 1. Distribution of hospital operating margins at baseline
Figure 2. Distribution of hospital operating margins at Medicare rates, no response
Hospitals reaching break-even
Figure 3 and Table 1 report the share of hospitals with an operating margin of zero or higher once every change in the response scenario is fully in effect. At baseline the share is 72 percent.
Figure 3. Share of hospitals at or above break-even by response scenario and policy scenario
Table 1. Share of hospitals at or above break-even by policy scenario and response scenario
| Policy scenario | No response | Conventional turnaround | Aggressive restructuring | System redesign |
|---|---|---|---|---|
| All payers at Medicare | 22% | 29% | 49% | 92% |
| Single payer at Medicare | 32% | 45% | 88% | 99% |
Source: Model calculations based on CMS Hospital Provider Cost Report data, fiscal year 2023.
Employment effects
The modeled hospitals employ about 4.2 million full-time equivalent (FTE) staff. Under the All payers at Medicare scenario, aggressive restructuring would result in a reduction of about 255,000 FTE positions (6 percent), and system redesign in a reduction of about 506,000 FTE positions (12 percent). Remaining staff would receive lower compensation under both scenarios.
Results by hospital type
Figure 4. Median operating margin by hospital type
By hospital type
Table 2. Results by hospital type
| Hospitals | Operating expense | Commercial share | Commercial payment relative to Medicare | Median margin, baseline | Median margin at Medicare rates | Median margin after aggressive restructuring | Share at break-even after aggressive restructuring | Median break-even payment level | |
|---|---|---|---|---|---|---|---|---|---|
| Major teaching | 400 | $468.2B | 40% | 1.47x | +4.3% | −13.3% | +1.4% | 58% | 1.23x |
| Other teaching | 801 | $414.5B | 38% | 1.67x | +6.4% | −17.3% | −1.7% | 42% | 1.30x |
| Urban non-teaching | 925 | $189.1B | 37% | 1.74x | +6.2% | −18.7% | −3.6% | 31% | 1.36x |
| Rural non-teaching | 578 | $90.4B | 29% | 1.78x | +2.5% | −16.7% | −1.4% | 45% | 1.36x |
| Critical access | 870 | $40.0B | 25% | 1.26x | +6.7% | +2.8% | +4.5% | 74% | 0.93x |
Source: Model calculations based on CMS Hospital Provider Cost Report data, fiscal year 2023.
By ownership
Table 3. Results by ownership
| Hospitals | Operating expense | Commercial share | Commercial payment relative to Medicare | Median margin, baseline | Median margin at Medicare rates | Median margin after aggressive restructuring | Share at break-even after aggressive restructuring | Median break-even payment level | |
|---|---|---|---|---|---|---|---|---|---|
| Nonprofit | 2,343 | $900.0B | 34% | 1.59x | +5.6% | −11.5% | +0.6% | 53% | 1.23x |
| For-profit | 654 | $109.4B | 38% | 1.94x | +8.0% | −20.7% | −5.7% | 12% | 1.38x |
| Government | 577 | $192.8B | 32% | 1.33x | +3.6% | −1.5% | +4.5% | 73% | 1.04x |
Source: Model calculations based on CMS Hospital Provider Cost Report data, fiscal year 2023.
By estimated commercial share of care
Table 4. Results by estimated commercial share of care
| Hospitals | Operating expense | Commercial share | Commercial payment relative to Medicare | Median margin, baseline | Median margin at Medicare rates | Median margin after aggressive restructuring | Share at break-even after aggressive restructuring | Median break-even payment level | |
|---|---|---|---|---|---|---|---|---|---|
| Lowest quarter (under 23%) | 894 | $144.8B | 15% | 1.99x | +4.7% | −7.3% | +1.9% | 58% | 1.21x |
| Second (23% to 34%) | 894 | $257.7B | 29% | 1.67x | +5.0% | −13.2% | −0.4% | 48% | 1.29x |
| Third (34% to 45%) | 893 | $375.9B | 39% | 1.55x | +5.7% | −14.6% | −1.0% | 46% | 1.28x |
| Highest quarter (over 45%) | 893 | $423.7B | 52% | 1.42x | +6.9% | −15.9% | −1.4% | 44% | 1.22x |
Source: Model calculations based on CMS Hospital Provider Cost Report data, fiscal year 2023.
Commercial payment relative to Medicare is the commercial price implied by each hospital's own revenue, relative to the assumed Medicare rate. The break-even payment level is the multiple of Medicare rates at which the median hospital in the group breaks even with no cost changes.
Break-even payment levels
For each hospital, the model calculates the multiple of Medicare rates that all payers would need to pay for the hospital to break even with no cost changes. A hospital with a multiple below 1.0 would break even at Medicare rates without any change in costs.
Figure 5. Distribution of break-even payment levels, no cost changes
Table 5. Break-even payment level as a multiple of Medicare, by percentile of hospitals
| 10th percentile | 25th percentile | Median | 75th percentile | 90th percentile | |
|---|---|---|---|---|---|
| No cost changes | 0.83x | 1.02x | 1.25x | 1.40x | 1.56x |
| After aggressive restructuring | 0.65x | 0.85x | 1.01x | 1.10x | 1.19x |
Source: Model calculations based on CMS Hospital Provider Cost Report data, fiscal year 2023.
Results by state
Table 6 includes the states with at least 10 modeled hospitals, ordered from the largest to the smallest decline in median margin at Medicare rates. States with many critical access hospitals show smaller declines for the reason described in the key findings.
Show the 47 states
Table 6. Results by state
| State | Hospitals | Median margin, baseline | Median margin at Medicare rates | Median margin after aggressive restructuring | Share at break-even after aggressive restructuring |
|---|---|---|---|---|---|
| SC | 53 | +8.3% | −23.6% | −7.6% | 17% |
| TX | 276 | +10.6% | −23.0% | −8.0% | 24% |
| TN | 85 | +3.1% | −22.8% | −7.3% | 13% |
| FL | 160 | +10.9% | −22.4% | −7.1% | 19% |
| UT | 42 | +13.2% | −21.4% | −6.8% | 19% |
| NV | 29 | +9.3% | −20.1% | −4.2% | 17% |
| NC | 97 | +7.8% | −19.6% | −6.2% | 27% |
| AZ | 66 | +5.4% | −19.1% | −4.2% | 32% |
| VA | 65 | +11.3% | −18.0% | −3.3% | 29% |
| GA | 118 | +8.5% | −17.3% | −3.9% | 40% |
| MS | 58 | +1.1% | −17.1% | −2.1% | 41% |
| NJ | 59 | +3.6% | −17.0% | −1.5% | 41% |
| CA | 227 | +3.1% | −15.5% | 0.0% | 50% |
| OK | 68 | +4.5% | −14.6% | −2.6% | 37% |
| AL | 77 | +0.7% | −14.2% | +1.2% | 53% |
| PR | 40 | +0.3% | −13.9% | +0.2% | 55% |
| PA | 142 | +4.6% | −13.8% | −0.2% | 49% |
| IN | 102 | +5.9% | −13.4% | −2.1% | 42% |
| CO | 69 | +6.4% | −13.1% | +0.1% | 52% |
| MI | 120 | +3.8% | −12.9% | +0.7% | 52% |
| LA | 56 | +6.5% | −12.2% | +2.2% | 57% |
| CT | 24 | +0.6% | −12.0% | +2.4% | 71% |
| MO | 82 | +6.2% | −11.6% | −0.7% | 48% |
| KS | 60 | +1.8% | −11.4% | 0.0% | 52% |
| OH | 146 | +7.8% | −11.2% | +0.9% | 56% |
| MA | 44 | +1.7% | −10.7% | +4.5% | 73% |
| IL | 122 | +6.3% | −10.4% | +1.4% | 59% |
| MD | 36 | +4.6% | −10.2% | +4.4% | 72% |
| WI | 101 | +9.3% | −10.1% | −0.1% | 49% |
| AR | 56 | +0.9% | −9.8% | +0.2% | 52% |
| WA | 64 | +0.6% | −9.5% | +1.6% | 58% |
| KY | 77 | +13.0% | −9.3% | +2.1% | 56% |
| WV | 39 | +2.7% | −7.3% | +2.9% | 59% |
| NY | 113 | +1.0% | −7.3% | +6.2% | 77% |
| NM | 28 | +3.7% | −6.6% | +1.1% | 50% |
| OR | 50 | +3.1% | −4.2% | +4.8% | 66% |
| ME | 32 | +1.3% | −3.7% | +4.7% | 72% |
| WY | 22 | +3.4% | −3.4% | +1.2% | 59% |
| ID | 37 | +5.1% | −0.7% | +1.0% | 65% |
| NH | 22 | +8.0% | −0.4% | +7.1% | 77% |
| MN | 108 | +5.6% | +0.1% | +4.1% | 76% |
| SD | 43 | +11.0% | +1.1% | +3.8% | 72% |
| MT | 33 | +5.5% | +2.2% | +5.5% | 82% |
| NE | 62 | +7.9% | +2.5% | +7.7% | 85% |
| IA | 84 | +10.6% | +3.2% | +6.5% | 87% |
| HI | 16 | +10.4% | +4.1% | +13.0% | 100% |
| ND | 25 | +6.3% | +4.5% | +9.7% | 84% |
Source: Model calculations based on CMS Hospital Provider Cost Report data, fiscal year 2023.
Uncertainty
Consistency check on the estimates
The model does not use commercial prices as an input. It derives them from each hospital's reported revenue after assigning payments for Medicare, Medicaid, and uncompensated care. The implied commercial price has a median of 1.60x Medicare, and the middle half of hospitals fall between 1.25x and 2.06x. This is consistent with hospital-wide payment-to-cost figures and is below the ratios that studies of employer-plan claims report for the services they cover. The result suggests that the payer mix estimates are reasonable in aggregate, though they are likely to be imprecise for individual hospitals.
Coverage
The model covers 3,574 of the 4,621 short-term acute care and critical access hospitals in the file. Table 7 lists the reasons that other hospitals were excluded.
Table 7. Hospitals excluded from the analysis, by reason
| Reason for exclusion | Hospitals |
|---|---|
| implied commercial price implausible | 516 |
| estimated payer mix leaves no commercial share | 236 |
| partial-year cost report | 167 |
| missing revenue, expense, salaries, FTEs or charges | 99 |
| too small | 16 |
| no patient volume reported | 11 |
| labor and depreciation leave no room for other expense | 2 |
Source: Model calculations based on CMS Hospital Provider Cost Report data, fiscal year 2023.
Excluding hospitals whose estimated payer mix or implied commercial price is implausible removes records for which the estimation failed. It also removes some hospitals that are unusual in fact, so the tails of the distributions reported here are likely to be thinner than in the full population.
Limitations
The results should be interpreted in light of several limitations.
- Medicare's payment-to-cost ratio is a single assumed value (0.84 for every prospective payment hospital) rather than a hospital-specific measure. Because this ratio determines where each hospital's finances settle after the policy takes effect, it is the largest single source of uncertainty.
- Payer mix is estimated from inpatient discharges, with Medicare Advantage added at 0.8 discharges per traditional Medicare discharge (0.4 for critical access hospitals). The outpatient payer mix may differ, and the Medicare Advantage share varies several-fold across markets.
- Operating margins include nonoperating income, such as investment returns, donations, and relief funds, so baseline margins are higher than operating margins excluding these sources would be.
- The analysis does not report the duration of cash reserves. The median hospital in the file reports about 30 days cash on hand, which reflects the common practice of holding cash at the parent system, so hospital-level estimates of duration would not be meaningful.
- Staffing by occupational group follows a template scaled to each hospital's reported payroll and FTE count, so estimates of lever savings by group are approximate.
- The analysis uses a single year of data. Fiscal years ending in 2023 may have included elevated contract labor costs at many hospitals.
- Each hospital is modeled independently. The model does not represent closures that shift patients to other hospitals, or changes in labor and supplier markets that could result from lower revenue across the hospital sector.
- The model does not estimate the effects of restructuring on quality of care, patient outcomes, or patient volume, and it treats Medicare Advantage as equivalent to traditional Medicare.
Source: CMS Hospital Provider Cost Report, fiscal year 2023 (data.cms.gov). Generated 2026-11-12 by run.py --national.
Results for each hospital are in output/national.csv.