Hospital Merger Increased Medicare and Medicaid Payments for Capital Costs
HRD-84-10
Published: Dec 22, 1983. Publicly Released: Jan 18, 1984.
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Highlights
Pursuant to a congressional request, GAO investigated the acquisition of the assets of Hospital Affiliates International, Inc. (HAI) by the Hospital Corporation of America (HCA). GAO used the merger as an example of changes in hospital costs under current Health Care Financing Administration (HCFA) Medicare policies for reimbursement of capital expenses after changes in hospital ownership. GAO focused on changes in interest, depreciation, and home office expenses because these costs are most likely to increase as a result of such acquisitions.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Health and Human Services | The Secretary of Health and Human Services should direct the Administrator, HCFA, to ensure that the intermediaries consider the GAO findings when finalizing the amount of increased costs associated with this acquisition that will be recognized as allowable by Medicare. |
Closed – Implemented
The intermediaries disallowed the reevaluation of assumed debt, required consistent useful life estimates, and required revisions to the appraisals used in valuing the acquired assets. All these adjustments resulted in lower Medicare and Medicaid costs.
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| Department of Health and Human Services | The Secretary of Health and Human Services should direct the Administrator, HCFA, to clarify Medicare guidelines as they relate to: (1) procedures for allocating debt and interest expenses for multiasset acquisitions; (2) prohibiting the discounting of assumed debt; and (3) acceptable asset valuation procedures when appraisals are used, including independence of the appraiser, consideration of the ownership of the assets, and useful life consistency. |
Closed – Implemented
HCFA clarified the applicable guidelines as GAO suggested. Action was finalized in November 1985.
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Topics
Accounting proceduresAppraisalsDebtMedicareHealth care cost controlHospitalsMedicaidProperty depreciationDepreciationPatient care