"Payment rates for Medicare and Medicaid, with the exception of managed care plans, are set by law rather than through a negotiation process, as with private insurers. These payment rates are currently set below the costs of providing care, resulting in underpayment. Payments made by managed care plans contracting with the Medicare and Medicaid programs are generally negotiated with the hospital.

Hospital participation in Medicare and Medicaid is voluntary. However, as a condition for receiving federal tax exemption for providing health care to the community, not-for-profit hospitals are required to care for Medicare and Medicaid beneficiaries. Also, Medicare and Medicaid account for more than 60 percent of all care provided by hospitals. Consequently, very few hospitals can elect not to participate in Medicare and Medicaid."

Source (American Hospital Association, December 2016): http://www.aha.org/content/16/medicaremedicaidunderpmt.pdf (Sorry it's a PDF)

Edit: updated from 2010 reference to 2016 reference