Up to 700 Hospitals May Close Because of Medicare, Study Says

Administrators of as many as 700 hospitals, many in rural areas, fear their facilities may be forced to close in the next five years because of financial problems such as government curbs on Medicare payments, according to a survey released Wednesday.

“The fact that so many hospitals anticipate failure is even more dramatic when one realizes that 150 hospitals have already closed in the past two years,” said Raymond J. Cisneros of Touche Ross, the accounting and management firm that conducted the survey.

The firm sent questionnaires to all of the nation’s 5,678 general acute-care community hospitals and received 1,419 responses.

Almost half of the administrators and medical directors who responded said they feared their institutions would fail in the next five years, largely because of Medicare’s fixed-payment system, which is designed to hold down costs.

Under that system, enacted in 1983, Medicare sets a fixed payment in advance for each hospital stay and normally does not pay any more regardless of how many days the patient stays or how many tests and other services the patient receives.

With Congress and the White House striving to hold down federal deficits, annual increases voted by Congress in the fixed-payment rates have generally not kept pace with inflation. Nearly 70% of the administrators said hospital income has dropped since the new system took effect.

According to the survey, hospitals with fewer than 100 beds and rural hospitals were the most pessimistic. Administrators of about three-fifths of each group said they fear their hospitals will fail in the next five years.

Fears were particularly strong in the Southwest, which has suffered from the collapse of oil prices, and in the Midwest, where heavy industry declined in the early 1980s.