HOSPITAL FINANCES: Medicare Margins Expected to Plummet
In the first comprehensive analysis of the Balanced Budget Act of 1997's impact on the hospital industry's financial health, a joint study conducted by HCIA Inc., Ernst & Young LLP and Guy King, the former chief actuary of HCFA, says that "[w]hile total hospital margins would have decreased even without the BBA, they are significantly smaller under BBA" and will near an all-time low over the five-year span of the act. Total hospital Medicare margins will be only 0.1% in FY 1999, down from 4.3% in 1997, and are predicted to stay below 3% through FY 2002. Total hospital margins are predicted to drop 48% over the life of the BBA -- the effect of Medicare reductions as well as other factors such as increased managed care penetration. Smaller hospitals in rural areas will be the hardest hit: the report predicts their margins will drop 233% from 4.2% in FY 1998 to -5.6% in FY 2002 ("A Comprehensive Review of Hospital Finances in the Aftermath of the Balanced Budget Act of 1997," March 1999). "[H]ospitals have not been doing as well as policymakers had previously thought," King said, noting that facilities "have been using inpatient margins to subsidize losses in other areas." But even inpatient margins, he said, "will be reduced significantly, eroding the ability of hospitals to subsidize other areas" (HCIA release, 3/15).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.