Although hospitals continued to lose money on Medicare, their Medicare margins improved in 1993 for the first time since the program moved to the prospective payment system 10 years ago, according to a federal study.
The average PPS margin for all hospitals in 1993 was -1.3%, up from -2.3% in 1992, according to a study released last week by the Prospective Payment Assessment Commission, which advises Congress on Medicare Part A matters.
In 1993, Medicare paid hospitals a total of nearly $65 billion under the prospective payment system.
The most significant improvements were made by proprietary hospitals. In 1990, they had an average PPS margin of -4.5%, nearly four percentage points below the average for all hospitals. However, by 1993, their margins were among the best at -0.5%, nearly a full percentage point better than the average.
According to ProPAC analysts, Medicare margins for proprietary hospitals have improved primarily because of tough cost-cutting measures. From 1990 to 1993, proprietary hospitals had the lowest annual rate of increase in Medicare operating costs per discharge, according to ProPAC.
Last year, ProPAC Chairman Stuart Altman told a congressional panel that the "critical factor in determining hospital financial status...will be how well hospitals can control cost growth."
At last week's meeting, he reiterated that sentiment. "We are seeing the pressure private payers are putting on the system," he said.
Mary Grealy, executive vice president for the Federation of American Health Systems, agreed that managed-care plans have put downward pressure on hospital costs. On a per-case basis, hospital costs continue to fall.
For the first eight months of 1994, ProPAC data show that hospital costs per case actually dropped at an annual rate of 0.9% after adjusting for inflation. In 1993, costs per case increased at an inflation-adjusted rate of 1.7%.
One component of the 1994 decrease was compensation for workers. According to ProPAC data for the third quarter of 1994, hospital workers' pay increased at an annual rate of 2.7%, compared with a national average for all civilian workers of 3.2%.
ProPAC also found average length of stay decreased 3.2% in 1994.