MASSACHUSETTS: Hospitals Bracing For Medicare Cuts
Most Massachusetts hospitals are "bracing for the financial equivalent of a punch in the stomach" Oct. 1 when the federal government "will slash hospital payments" under Medicare, the Boston Herald reports. Last year's balanced budget agreement changed the way Medicare reimburses hospitals, resulting in "a tough hit" of "millions of dollars" for hospitals that "often struggle to break even" each year. "Every hospital that I know of is facing real tough choices and real financial problems. It will be hard to swallow," said James Kirkpatrick of the Massachusetts Hospital Association. According to the MHA, the Medicare changes will cut at least $274 million from hospitals in the state beginning this fiscal year. But by FY 2002, the cuts will have grown to $457 million, reaching a total of $1.7 billion over five years, according to "conservative" estimates.
Hospital executives say the cuts "will hurt a great deal," because at current reimbursement rates they are barely breaking even. "When you operate at something close to break even, obviously a change of $4 million makes a material difference on the bottom line. It's anywhere from half to all of your bottom line ... we've been operating up until this year with a 2% operating margin," said Timothy O'Connor, CFO of Lahey Clinic, which expects to see $3.4 million less in Medicare funds next year. The Herald notes that the "cuts also come at a time when hospitals have been counting on Medicare to make up for losses in other areas," such as cuts by HMOs and other insurers. MHA's Kirkpatrick said, "There's no place else to make it up ... there'll just have to be a lot of cutting. There certainly are going to be no hospital services that are related purely to convenience." Robert Fanning, CEO of Northeast Health System, said the only answer to reducing expenses "is further consolidation." But the Herald reports that "that prospect raises questions of its own" because many of the state's hospitals "were full or close to full last winter and spring, leaving few attractive options for merging services and reducing the total number of beds" (Convey, 8/26).