many hospitals are reimbursed at a "percentage of allowable cost". Critical Access facilities are the exception to the rule and are reimbursed at 100 percent of "allowable cost" as calculated by medicare.
Most hospitals are somewhere between 40 percent and 60 percent of "allowable cost," which means medicare figures out what it "should" cost your hospital for a particular service, then reimburses that hospital 40 percent to 60 percent of the cost, which translates directly to: your hospital loses money on every medicare patient and needs to make that up somewhere else to break even.
The American Hospital Association has an article that breaks things down nicely. Unfortunately, I can not insert the address of this article. You can go to the AHA website and look for The Fragile State of Hospital Finances.