Hospital Medicare profit margins will top 15% in 2002 even after the spending restraints in the balanced-budget law take effect, according to estimates released last week by a congressional advisory panel.
The newest projections drew sharp criticism from the American Hospital Association, which argued the Medi-care margins do not give a true picture of hospitals' financial health.
According to the Prospective Payment Assessment Commission, Medi-care PPS margins, or profit margins from providing inpatient care to beneficiaries, are projected to hit 14.2% this year then drop to 12.6% in 1998, primarily because of the one-year freeze on Medicare inpatient payment rates mandated by the balanced-budget law.
But the law permits limited rate increases in the final four years of the five-year budget law. Those increases along with minimal growth in hospitals' inpatient Medicare costs will be reflected in rebounding profit margins (See chart).
Specifically, hospitals' PPS margins will rise steadily to 15.3% by 2002, ProPAC estimated.
Absent the Medicare spending controls in the budget law, hospitals' PPS margins would have hit 24.2% in 2002.
Last year ProPAC was the first group to call for a freeze on hospital inpatient Medicare payment rates-a proposal that found its way into the budget law enacted in August. ProPAC cited strong hospital PPS margins as its justification for the freeze.
Before the enactment of the budget law, hospital groups argued unsuccessfully to lawmakers that ProPAC's estimates overstated the financial position of many hospitals.
In a letter to ProPAC Chairman Joseph Newhouse last week, AHA President Richard Davidson repeated that criticism. He called the estimates "reckless" and said they would "again be misconstrued by many as a picture of the financial health of hospitals and health systems."
According to the latest economic data from the AHA, hospitals enjoyed a 5.1% total profit margin last year but suffered a -0.8% margin on patient care.
"The real story: One in five hospitals is substantially at risk with negative total margins," Davidson wrote.
The new data, though, is unlikely to spur Congress to seek further curbs on Medicare spending on acute-care hospital services or seek an extension of the one-year freeze, observers say.
A Republican congressional aide said he didn't think there was much interest in altering the Medicare portion of the budget, at least until the report by the National Bipartisan Commission on the Future of Medicare in 1999.