A new report documenting record hospital profits could hamstring hospital lobbyists as they press their legislative agenda on Capitol Hill.
As in past years, the success of that agenda largely depends on how well the industry portrays itself as being in dire financial straits.
That job was made much for difficult earlier this month with the American Hospital Association's release of its annual Hospital Statistics report. The report revealed that contrary to industry rhetoric, aggregate hospital industry profits jumped nearly 25% in 1996 to a record $21.3 billion. That represents a 6.7% total profit margin, also an industry record (Jan. 12, p. 2).
"It is going to make advocacy more difficult," said James Bentley, senior vice president for strategic policy planning at the AHA. "Some members of Congress may say we don't perceive a need given your margins to pay for this, that or the other thing, or we perceive we can make some cuts."
Bentley said when lobbying for money, it's best to go to Capitol Hill with "threadbare hat in hand."
Last summer, for example, when the hospital industry was battling against a proposal to freeze Medicare payment rates in fiscal 1998, the AHA said, "Financial experts agree that hospitals' health is worsening."
The AHA also hired outside financial experts to testify that ever-increasing prospective payment system margins, which measure hospital profitability from treating Medicare inpatients, aren't an accurate gauge of overall hospital profitability. The same AHA-hired experts said hospitals that don't have at least a 6% total profit margin "are in a precarious financial condition."
Lawmakers ignored the claims and implemented the freeze, which went into effect last Oct. 1.
"I don't think it hurts our credibility because we've always tried to be clear about how our members are performing," Bentley said. "It's our challenge to try to explain . . . what is out there and why we and our members are concerned about it."
Gail Wilensky, chairwoman of the Medicare Payment Advisory Commission, said she does not believe PPS margins are a meaningless measure or that they "should not be looked at," but she does agree with the AHA that margins "are not a perfect" measure of hospitals' financial condition. "But until something better comes along we will still use them," Wilensky said.
The profit margin for Medicare inpatient care has risen to 11.3% in 1996 from 0.8% in 1993 and appears to have pulled overall hospital profitability along with it (See chart).
"The PPS margin correctly describes a part of the business, but it does not describe the relationship between total Medicare payments and total Medicare costs," Bentley said.
Thomas Scully, president of the Federation of American Health Systems, said that even at their highest level in years, hospital margins are not out of line.
"The market doesn't lie. If we were getting unbelievable returns, hospital stocks would be the steal of the century," Scully said. "(Hospital companies) are doing well, but if PPS margins told the whole story, stock prices would be going through the roof."
Nevertheless, reports that hospitals are flush with money won't make it any easier on the AHA and the federation when they press their case on Capitol Hill this year. Their legislative agendas include:
Persuading lawmakers to force HHS to scale back its fraud-fighting efforts against hospitals that allegedly submit false Medicare claims.
Asking lawmakers to reverse a provision in last year's balanced-budget law that cut Medicare payments to hospitals for patients discharged earlier than expected to post-acute-care facilities the hospitals own.
Battling an effort by HCFA to reduce the government's share of hospitals' bad-debt costs (See story, p. 13).
In each case, the industry is asking the government to leave hospitals' money alone -- a tough sell when so much of it appears to be lying around.
The AHA, however, is predicting that the days of high profit margins are coming to an end primarily because of changes in Medicare payment rules and stricter controls by other payers.
"It looks like this thing is beginning to level off," Bentley said.
The record profits in 1996 should be looked at as ancient history because so much has changed since then, said Mark Pauly, chairman of the healthcare systems department at the Wharton School at the University of Pennsylvania.
"As the stock market rose and as investments became more profitable, total profits, not operating profits, could rise even if the hospital business was still in the toilet," Pauly said.
On the plus side for the industry, the Medicare budget was set through fiscal 2002 by the balanced-budget law and likely won't be reopened for further tinkering.
"I don't think there will be much of an appetite this year to do anything with the budget," said one GOP Senate aide.
It also is unlikely President Clinton's fiscal 1999 budget, due out early next month, will include any Medicare spending changes.