When the federal budget battle began last fall, lobbyists for the American Hospital Association repeatedly warned lawmakers to tread lightly on Medicare spending reductions because 40% of hospitals lose money on treating Medicare inpatients.
When a congressional advisory panel reported higher-than-expected overall hospital profit margins from treating Medicare inpatients, the same lobbyists said the figures weren't telling the whole story because of those 40% of hospitals with negative prospective payment system profit margins.
And when lawmakers began considering a freeze on Medicare hospital payment rates, the same lobbyists said such an action would jeopardize the 40% of hospitals losing money on Medicare inpatient care.
What the lobbyists haven't said is that the percentage of hospitals losing money on Medicare inpatient care is the lowest it's been since 1986, and that figure will drop even lower this year and next.
According to figures from the Prospective Payment Assessment Commission, some 36% of hospitals had negative PPS profit margins in 1995, and that's projected to drop to 23% by 1998 (See chart).
The percentage of hospitals losing money on Medicare inpatient care peaked in 1990 at 59%, dipped to 51% in 1991, jumped back to 57% in 1992 and has been declining ever since.
The AHA, in a recent letter to HHS Secretary Donna Shalala criticizing the White House's decision to propose a hospital payment freeze, said that for the "40% of the nation's hospitals who are already reimbursed less than their costs when they treat Medicare inpatients . . . the latest proposal will have a devastating impact."
Overall, proprietary hospitals were the least likely to have lost money on Medicare in 1995.
According to ProPAC, 24% of all investor-owned hospitals had negative PPS margins in 1995, more than 12 percentage points less than the national average. The investor-owneds had the lowest rate of cost growth among ownership categories, resulting in their better-than-average margins, ProPAC found. By comparision, more than 37% of private not-for-profit hospitals lost money on Medicare.
ProPAC data also put in perspective another rallying cry by AHA lobbyists: that 20% of all hospitals are operating in the red considering all sources of revenues, including Medicare. The lobbyists say those hospitals would be placed at financial risk from a Medicare payment freeze.
But ProPAC says the percentage of hospitals operating in the red is the lowest it's been since PPS began in 1984. And, adding pressure on hospital lobbyists, ProPAC revised its latest available figures on hospital PPS profit margins upward.
The latest ProPAC data found hospital Medicare margins averaged 11.3% in 1996 and will be 12.7% in 1997. And absent any changes by lawmakers, Medicare margins could be nearly 15% in 1998. All three of those estimates are up nearly a percentage point from preliminary projections.
ProPAC recommended to Congress that Medicare hospital inpatient rates for fiscal 1998 be frozen at 1997 levels.