Even though Medicare froze hospital payments this fiscal year, hospital profit margins from Medicare inpatient care are still projected to reach record levels, according to a report to be released this week by the Medicare Payment Advisory Commission.
For 1998, Medicare margins are expected to hit 15.9%, their highest level since the prospective payment system began in 1984, according to MedPAC, which reports to Congress on Medicare issues (See chart).
But not everyone believes those estimates.
"That just can't be right. There is no way that is right," said Thomas Scully, president of the Federation of American Health Systems. "I talk to real hospital administrators, and I can tell you there is a real squeeze right now. This just doesn't make sense given the general agony I see hospitals going through."
In fact, two of the federation's most prominent members, Columbia/HCA Healthcare Corp. and Tenet Healthcare Corp. blamed lower-than-expected Medicare reimbursements for their less-than-glowing quarterly financial results (See related story, p. 17).
Medicare margins remain robust even as payments have been frozen because hospitals continue to hold down costs, according to Gail Wilensky, who chairs MedPAC.
"Hospitals have really driven down costs-we presume in response to pressure from payers," Wilensky said.
In fact, hospital costs have risen so slowly that MedPAC revised upward its estimates of fiscal 1995 hospital PPS margins, the last year for which complete numbers are available. Last year MedPAC estimated hospital Medicare margins for 1995 at 10%. However, revised hospital cost figures for that year have led MedPAC to raise the final projection for 1995 to 10.5%.
MedPAC has not refigured 1996 or 1997 margins, because HCFA has not supplied the needed data. According to HCFA, computer resources normally used to generate those numbers are being dedicated to fixing the "millennium bug" computer problem.
Overall, Medicare is projected to spend $106 billion for hospital inpatient care in 1998, rising to $120 billion in 2003, according to the Congressional Budget Office.
Once the sleepy domain of economists and policy wonks, the issue of hospital Medicare margins has been hot since the Prospective Payment Assessment Commission, the predecessor to MedPAC, last year recommended a one-year freeze on hospital Medicare inpatient payments for fiscal 1998. The panel based its recommendation on the fact that hospital margins had hit 10%, at the time their highest level since the mid-1980s. Congress eventually accepted the recommendation and implemented it as part of last year's balanced-budget law.