Page 1 GAO-13-667R Hospital Ownership

441 G St. N.W.

Washington, DC 20548

June 27, 2013

The Honorable Tom Coburn, M.D.

Ranking Member

Committee on Homeland Security and Governmental Affairs

United States Senate

The Honorable Richard Burr

Ranking Member

Subcommittee on Primary Health and Aging

Committee on Health, Education, Labor and Pensions

United States Senate

Subject: Medicare: Ownership Status of Inpatient Prospective Payment System Hospitals That 

Qualify for Payment Adjustments

In 1983, Congress created the inpatient prospective payment system (IPPS) to help control the 

growth of hospital spending and give hospitals a strong incentive to provide care efficiently.1

Congress can enhance Medicare payments to certain hospitals by changing the qualifying 

criteria for IPPS payment categories, creating and extending exceptions to IPPS rules, or 

exempting certain types of hospitals from the IPPS. Often such efforts are intended to help 

ensure beneficiary access to care or to help hospitals recruit and retain physicians and other 

medical professionals. In April 2013, we reported that numerous statutory provisions have been 

enacted from 1998 through 2012 to increase Medicare payments to a subset of hospitals.

Under this system, Medicare pays hospitals a flat fee per stay, set in advance, with different 

amounts for each type of condition. Payment rates are also influenced by such factors as the 

relative hourly wage in the area where the hospital is located and whether the hospital qualifies 

for additional payments.

2

In response to these findings, you asked us to provide information about the ownership status of 

the IPPS hospitals included in our review, particularly those hospitals qualifying for payment 

adjustments in 2012. To address this issue, we analyzed two datasets from the Centers for 

Medicare & Medicaid Services (CMS): the fiscal year 2013 impact file and the 2013 Hospital 

Compare database. We used the impact file to identify hospitals paid under the IPPS as of July 

2012, those hospitals that received payment adjustments, the category of adjustments for which 

We 

also reported that nearly all hospitals in our review qualified for an IPPS payment adjustment or 

were excluded from the IPPS entirely in 2012.

 

1

See Social Security Amendments of 1983, Pub. L. No. 98-21, § 601, 97 Stat. 65 (1983) (codified, as amended, at 

42 U.S.C. § 1395ww).

2

GAO, Medicare: Legislative Modifications Have Resulted in Payment Adjustments for Most Hospitals, GAO-13-334

(Washington, D.C.: Apr. 17, 2013).
Page 2 GAO-13-667R Hospital Ownership

they qualified, and the extent to which they qualified for multiple categories of adjustments.3 We 

merged those data with Hospital Compare using Medicare provider identification numbers in 

order to associate each hospital with one of nine ownership categories, allowing us to classify 

them as nonprofit, for-profit, government-owned, or physician-owned.4

This work is based on our initial April 2013 report and our subsequent analysis of hospital 

ownership data, and was conducted in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to obtain sufficient, 

appropriate evidence to provide a reasonable basis for our findings and conclusions based on 

our audit objectives. We believe that the evidence obtained provides a reasonable basis for our 

findings based on our audit objectives. This follow-on work was prepared in May and June 

2013.

In order to assess the 

reliability of the data we analyzed, we reviewed CMS’s documentation on both data sets and 

interviewed CMS officials familiar with the data sets. We found these data sufficiently reliable for 

the purpose of this engagement.

Background

We found in our previous report that, in 2012, payment adjustments affected the vast majority of 

IPPS hospitals in our review. Among the 3,455 IPPS hospitals, 3,039 hospitals, or 88 percent, 

qualified for at least one of the following four categories of upward payment adjustments.5

• Medicare disproportionate share hospital (DSH). The Medicare DSH adjustment generally 

provides supplemental payments to hospitals that treat a disproportionate number of lowincome patients. The amount of Medicare DSH payment adjustment varies by hospital 

location and size.

• Indirect medical education (IME). Medicare reimburses teaching hospitals and academic 

medical centers for indirect costs of their residency training programs through an IME 

adjustment. The size of the IME adjustment depends on the hospital’s teaching intensity, 

which is generally measured by a hospital’s number of residents per bed.

• Wage index reclassification. CMS adjusts hospital payments under IPPS using the area 

wage index to account for variation in labor costs across the country. If a hospital’s wage 

index does not fully account for its relative labor costs, the hospital may qualify to be 

reclassified to a higher wage index area in order to receive higher Medicare payments. To 

request a reclassification to another geographic area, hospitals may apply to the Medicare 

Geographic Classification Review Board.

 

3

The impact files provide hospital-level data CMS uses to estimate payment impacts of various policy changes in 

proposed and final rules published in the Federal Register. CMS usually prepares impact files in the summer 

proceeding each federal fiscal year, based on the most recent data available at the time. Impact files include data on 

all Medicare acute care general hospitals except critical access hospitals, children’s hospitals, and other facility types 

that are not paid under the IPPS. In addition, because Maryland hospitals are not paid under the IPPS, we removed 

Maryland data from our analysis of the impact files.

4

Information on hospital characteristics reported in CMS’s Hospital Compare database is submitted by hospitals 

through the CMS Certification and Survey Provider Enhanced Reporting system. We used data as of April 2013.

5

The remaining 416 hospitals, about 12 percent, received IPPS payments that were unadjusted for the types of 

modifications included in our review. 
Page 3 GAO-13-667R Hospital Ownership

• Rural provider type. Rural hospitals may qualify for special treatment in determining 

payment rates under IPPS, although some urban hospitals may also qualify, through three 

programs: sole community hospitals (SCH), rural referral centers (RRC), and Medicaredependent hospitals (MDH). Generally, the SCH program provides payment adjustments to 

hospitals that are the only source of inpatient care in their community; the RRC program 

supports high-volume rural hospitals that treat a large number of complicated cases; and the 

MDH program provides payment adjustments to small rural hospitals for which Medicare 

patients make up a significant percentage of inpatient days or discharges.

Of the four categories, the DSH adjustment had the broadest reach, affecting payments to about 

four in five IPPS hospitals. Nearly one in three hospitals qualified for an IME adjustment, one in 

three qualified for a wage index reclassification adjustment, and almost one in five received a 

rural provider type adjustment.

Results

We found that the proportion of the 3,039 IPPS hospitals in our review that qualified for at least 

one of four categories of payment adjustments was higher among nonprofit and governmentowned hospitals than among for-profit hospitals.6 On average, about 97 percent of governmentowned hospitals and about 90 percent of nonprofit hospitals received at least one form of 

increased payment in 2012. In contrast, roughly 80 percent of for-profit hospitals qualified for a 

payment adjustment that year. (See table 1.)

 

6

In our analysis, categories of upward payment adjustments for hospitals are defined as: DSH adjustment; IME 

adjustment; wage index reclassification; and special treatment of SCH, MDH, or RRC rural provider types. Because 

these categories are not mutually exclusive, a hospital could qualify for more than one type.
Page 4 GAO-13-667R Hospital Ownership

Table 1: Number and Percent of Inpatient Prospective Payment System (IPPS) Hospitals Qualifying for 

Increased Payment, by Ownership Type, 2012

IPPS hospitals that qualified 

for increased payment

Ownership type

Number of

IPPS hospitals Number Percentage

Nonprofit 2,000 1,798 89.9%

Private 1,178 1,050 89.1

Church 353 319 90.4

Other 469 429 91.5

For-profit 737 a 587 79.6

Government-owned 621 600 96.6

Hospital district or authority 296 b 290 98.0

Local 207 200 96.6

State 61 57 93.4

Federal 57 c 53 93.0

Physician-owned 29 d 9 31.0

Unknown 68 45 66.2

Total 3,455 3,039 88.0%

Source: GAO analysis of CMS data.

Notes: Categories of upward payment adjustments for hospitals are defined as: Medicare disproportionate share hospital (DSH)

adjustment; indirect medical education (IME) adjustment; wage index reclassification; and special treatment of rural provider types. 

a

Private for-profit hospitals include those owned by sole proprietors, limited liability corporations, partnerships, and corporations.

b

Public hospitals owned by a special hospital district created by a state, or by a public authority created by a state. For example, a 

state university hospital might be operated by a public authority.

c

Federal hospitals are limited to Indian Health Services hospitals.

d

Private hospitals whose individual owners have their own Medicare provider identification number or National Provider Identification 

number.
Page 5 GAO-13-667R Hospital Ownership

For-profit hospitals were more likely to receive no, or only one form of, additional payment, 

whereas government-owned and nonprofit hospitals were more likely to receive two or three 

forms of additional payment. (See fig. 1.)

Figure 1: Percent of Nonprofit, For-Profit, and Government-Owned Inpatient Prospective Payment System 

(IPPS) Hospitals Qualifying for No, One, or Multiple Forms of Increased Payment, 2012

Notes: Categories of upward payment adjustments for hospitals are defined as: Medicare disproportionate share hospital (DSH)

adjustment; indirect medical education (IME) adjustment; wage index reclassification; and special treatment of rural provider types. 

a

Nonprofit hospitals include church-owned, private, and certain other types of hospitals.

b

Private for-profit hospitals include those owned by sole proprietors, limited liability corporations, partnerships, and corporations.

c

Agency Comments

Government-owned hospitals include hospital district or authority, local, state, and federal hospitals.

The Department of Health and Human Services reviewed a draft of this report and did not have 

any general comments. The department provided technical comments, which we incorporated 

where appropriate.
Page 6 GAO-13-667R Hospital Ownership

– – – – – 

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and Kathryn Richter.

James Cosgrove

Director, Health Care

(291147)
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