The revelation by a congressional advisory panel that hospital Medicare profits have skyrocketed has hospital industry lobbyists worried that lawmakers will use the findings to justify big reductions in Medicare spending.
Profits from Medicare inpatient care were so high, in fact, that the Prospective Payment Assessment Commission recommended Congress freeze hospital Medicare payment rates next fiscal year.
ProPAC reported that hospitals' PPS profit margins averaged 7.9% in 1995, up from 5% in 1994 and the highest since 1986, when hospitals posted an 8.7% margin on the Medicare prospective payment system.
Just four years ago, hospitals averaged a negative 1.1% margin. Since then, margins have steadily risen.
Investor-owned hospitals led the way with an average PPS margin of 14.6%, while rural government hospitals trailed with a zero margin.
ProPAC said less than 20% of Medicare-eligible hospitals lost money on treating Medicare beneficiaries. That's the lowest percentage of hospitals with a negative PPS margin since the program began in fiscal 1984.
ProPAC said the increased hospital profitability was primarily due to reduced hospital costs.
Partially as a result of the strong hospital performance, ProPAC voted to recommend to Congress that both Medicare inpatient hospital payments and Medicare capital payments to hospitals remain flat.
ProPAC has never called for a reduction in hospital payments, but there was strong sentiment among a number of commissioners on the panel to do just that.
"Personally, I would like to go (to a) negative (update), but I can live with zero," said Hugh Long, a professor at Tulane University in New Orleans.
James Bentley, senior vice president for policy affairs at the American Hospital Association, said he was concerned that lawmakers looking to balance the budget would take ProPAC's findings as a sign that hospital payments can be significantly reduced.
"This is an earned margin," Bentley said. "(Lawmakers) said to get more efficient and we did. It's unfortunate, but it's very easy to see someone saying `here is the place to cut.'*"
Bentley noted that historically Congress has enacted a hospital payment update that is lower than the one recommended by ProPAC. Because lawmakers have been unable to reach a budget accord in the past two years, proposed hospital payment reductions have not been enacted. As a result, hospital payments have been higher in recent years than they otherwise would have been.
"There are real political difficulties created by the technical experts recommending a zero update," Bentley said. "This has clearly increased the political pressure on us."
ProPAC also said hospitals' total profit margins, which include all types of patients and sources of revenues, improved to 5.6% in 1995 from 5% in 1994.