https://www.cbo.gov/publication/51920

Key Findings and Limitations of This Analysis

Our analysis of hospitals’ profit margins incorporates the effects of the cuts in Medicare’s hospital payment updates specified in the ACA, other reductions in federal payments to hospitals specified in the ACA and in other recent laws, and demographic changes (which will put downward pressure on hospitals’ margins as more patients shift from higher-paying commercial insurance to lower-paying Medicare coverage). The analysis also incorporates the effects of the expansion of insurance coverage under the ACA, which will improve hospitals’ finances by reducing the number of patients who are uninsured. The analysis focuses on about 3,000 hospitals that provide acute care to the general population and are subject to the reductions in Medicare’s payment updates; it thus excludes most rural hospitals and all of Medicare’s “critical access” hospitals.

As a starting point, we estimated that the average profit margin of the hospitals included in the analysis was 6.0 percent in 2011 and that 27 percent of them had negative profit margins (in other words, they lost money) in that year. That share may be surprisingly high but is similar to the shares of hospitals with a negative annual profit margin over the past two decades. Although some hospitals have closed over that period, others have opened, overall access to care remains good (as measured by indicators such as service use and hospital capacity), and the quality of care may have improved.