Hospitals' inpatient revenues from Medicare grew at a faster rate last year than inpatient revenues from any other source, the U.S. Labor Department reported last week.
It marked the first time since the department's Producer Price Index began tracking hospital revenues in 1993 that growth in Medicare payments outpaced growth in payments from either Medicaid or private payers.
The results raise several policy questions for Washington lawmakers, who are haggling over reductions in budgeted Medicare and Medicaid spending. First, should Medicare be a more generous payer than payers in the private sector? And second, with the rate of Medicare payments exceeding that of other payers, what validity does the hospital industry's often-heard "cost shifting" argument hold?
Hospitals long have claimed that payment shortfalls from Medicare and Medicaid must be passed along to other payers in the form of higher prices.
The results mirror findings from a variety of sources, all indicating that, with help from Medicare, hospitals have maintained their profitability despite drastic marketplace changes occurring almost daily. Those findings include:
The Prospective Payment Assessment Commission reported last December that hospitals' prospective payment system, or inpatient Medicare, profit margin hit 3.4% in 1994-its highest level since 1988 (Dec. 18-25, 1995, p. 2).
Hospitals' operating profit margin grew to 3.45% in 1994 from 3.06% in 1993, according to a report from HCIA, a Baltimore-based healthcare information company, and the accounting firm Deloitte & Touche (Dec. 11, 1995, p. 65). Those figures include revenues from all patients.
Hospitals' total profit margin held steady at 3.9% in 1994, according to a report from the Center for Healthcare Industry Performance Studies (Sept. 25, 1995, p. 5). Those figures include revenues from all sources.
And if the Labor Department's latest figures are any indication, hospitals' overall financial performance last year may have been similar or better. However, data for all of 1995 won't start trickling in until the end of this year.
The Labor Department reported that hospital inpatient revenues from Medicare rose 4.1% last year, up substantially from a 1.3% increase in 1994. By comparison, inpatient revenues from Medicaid rose 1.4% last year, while inpatient revenues from all other patients climbed 2.9% (See chart).
Growth in inpatient revenues from private-pay or privately insured patients has declined steadily since 1993, when the Labor Department began tracking hospital revenues. The trend is another sign that reimbursement from privately insured patients is being tightly controlled by managed-care plans (See related story, p. 2).
On the outpatient side, hospital revenues jumped 6%, compared with 4.9% in 1994. Leading the charge were revenues from private-pay and privately insured outpatients. Revenues from those patients rose 6.7% last year.
The PPI measures changes in net revenues per episode of care and breaks those changes down into dozens of subcategories. The figures are based on monthly reports from a representative sample of 430 hospitals.
Overall, hospitals' net revenues from all patients and for all types of care climbed 3.7% last year, compared with 3.6% in 1994.
Another report released last week confirmed the trend to slower growth in private health costs. Data released by the National Committee for Quality Health Care showed per capita Medicare costs grew 10.5% in 1993, compared with an increase of just under 5% for the private sector.
The report showed that private per capita healthcare costs increased by 135% from 1978 to 1993, compared with an increase of 211% in Medicare costs during the same period.
The NCQHC is a Washington-based coalition of healthcare organizations.