A congressional advisory panel's disclosure last week that Medicare hospital inpatient profit margins reached record levels in 1997 has hospital lobbyists concerned that lawmakers could look to hospital reimbursements to fund a tax cut or expanded Medicare benefits next year.
According to the Medicare Payment Advisory Commission, which advises Congress on Medicare issues, hospitals' inpatient Medicare margin topped 16% in 1997-the highest level since the inception of the prospective payment system in 1984.
The margin outlook for fiscal 1998 and fiscal 1999, when payment cuts enacted in last year's balanced-budget law take effect, remains strong at 15.9% and 15.7%, respectively, the commission estimated.
The record margins have hospital lobbyists concerned that Congress and the Clinton administration will consider further reducing Medicare hospital payments next year to pay for other initiatives.
"We have to knock this perception down," said Michael Bromberg, counsel for the lobbying firm Steelman Health Strategies in Washington. "I'm convinced this needs to be the No. 1 policy priority for hospitals right now. We have to get the message out. I don't know anyone who believes these (margins)."
MedPAC said the margins resulted primarily from continued cost cutting at hospitals. Medicare inpatient costs per case decreased by 0.6% in 1997, the fourth straight year the measure has dropped.
But hospital groups say the cost decreases can't continue and that the high Medicare margins do not portray an accurate picture of hospitals' financial health.
"You can cut only for so long," said Carmela Coyle, senior vice president for advocacy and representation at the American Hospital Association.
Coyle cited pressures being felt by hospitals, including year-2000 computer problems, increased pharmaceutical costs and rising labor expenses.
"Just considering those few things alone indicates it will be difficult to maintain negative cost growth," Coyle said.
While hospital inpatient margins remain strong, nearly a quarter of all hospitals still had negative PPS margins in 1997, although that's the lowest rate since 1985 (See chart).
The AHA released its own rebuttal of the MedPAC analysis, which noted the Medicare inpatient margins do not take into account losses being suffered by hospitals in other areas.
For example, MedPAC said earlier this month that Medicare currently pays only 83 cents for every dollar of costs for outpatient payments.
According to MedPAC, hospitals' total margin, which includes revenues from all sources, including Medicare, averaged 6.4% in 1997, the highest level since 1985. That finding supports a new private-sector report that said overall hospital profitability improved last year (See story, p. 48).