Primarily as a result of a one-year freeze on hospital Medicare payment rates, Medicare expenditures on hospital inpatient care are projected to take an unprecedented 1% drop this fiscal year, according to new government estimates released last week.
Since the prospective payment system was implemented in 1984, there has never been a decline in total inpatient Medicare spending, according to the Medicare Payment Assessment Commission.
The Congressional Budget Office report said total Medicare hospital inpatient spending was $89.3 billion in fiscal 1997. But largely because of the one-year freeze that was implemented as part of last year's balanced-budget law, Medicare is expected to spend only $88 billion in fiscal 1998, which began last Oct. 1.
Inpatient spending is projected to rise by 1% annually from fiscal 1999 through 2001, according to the CBO.
The news in Medicaid is only slightly more encouraging for providers. Federal Medicaid spending on acute-care services is expected to rise to about $50 billion this fiscal year from about $48 billion in fiscal 1997.
Carmela Coyle, senior vice president for advocacy and representation at the American Hospital Association, said the report shows that "hospitals were hit hard by the balanced-budget act."
Coyle added that recent increases in hospital Medicare margins, which have been fueled by hospital cost cutting, cannot be sustained in the face of reduced Medicare spending.
"The real question is how long this can be maintained," Coyle said. "The next three to five years you may see some significant changes to the trends of the past couple of years."
MedPAC estimated that 1997 Medicare hospital profit margins under PPS were 14.2%, up from 11.3% in 1996. The 1998 PPS margins are expected to drop and then begin to rise steadily through 2002 when margins will hit 15.3%, MedPAC projects. The actual 1998 estimates will not be available until later this month.
Medicare physician spending is expected to increase to $45 billion in fiscal 1998 from $43 billion in 1997, while managed-care plans will receive about $30 billion this year, up from $24 billion last year.
The CBO projects that total Medicare spending will increase from $208 billion in fiscal 1997 to $306 billion in 2003.