MEDICARE: Most Hospitals Had Healthy Profits Last Year
The Medicare Payment Advisory Commission released preliminary figures yesterday showing that hospitals enjoyed a healthy 6.4% profit margin last year. In addition, MedPAC reports that hospitals' margins for inpatient treatment of Medicare beneficiaries topped 16% (MedPAC release, 12/14). But the American Hospital Association argues that many hospitals which appear to be financially "well" when viewed through Medicare's Prospective Payment System are actually quite sick. For example, the AHA argues that 12% of hospitals with PPS margins of 5% or more actually had negative total margins for 1996. Total margins reflect all public and private payors, inpatient and outpatient services and non-patient care activities. The AHA released figures showing that 19% of hospitals had negative margins in 1996, and another 10% broke even. The AHA warns "[t]here is a misperception that all hospitals are doing well. In fact ... 28.9% of hospitals are in serious financial trouble, with total margins of less than 2%." In addition, the AHA notes that managed care payments for Medicare beneficiaries are not factored into MedPAC's projections for hospital profit margins, and argues that MedPAC's projections become "more irrelevant" as Medicare HMOs become more prevalent.
Can This Last?
The AHA reports that "hospitals have slowed the rate of growth in their costs over the last four years" in response to private market pressures and Medicare payment reductions, and asserts that hospitals actually reduced the costs per admission in 1997. But the AHA warns that a "negative growth rate is not sustainable indefinitely" (AHA release, 12/15). MedPAC's figures, however, show that most hospitals, about 80%, were in the black for 1996 and 1997. Moreover, MedPAC projects that hospitals can expect profit margins of about 16% through 1999 for inpatient care provided to Medicare beneficiaries (MedPAC release, 12/14).