Hospitals' net revenues rebounded last year, with money coming from an unlikely source: Medicare.
Medicare inpatient revenues rose 0.4% after dropping 1% in 1997, while Medicare outpatient revenues increased 2.6% compared with a 1.6% jump in 1997, according to the U.S. Labor Department's Producer Price Index.
Overall, hospitals' net revenues rose 1.1% in 1998 compared with 0.4% in 1997, the department said last week.
The PPI measures wholesale prices, or changes in net revenues per episode of care, for the 12-month period ended in December.
The department's release of the PPI as well as the Consumer Price Index, which found an acceleration in medical inflation, comes during a mad scramble in Washington. Special-interest groups, the White House, lawmakers and think tanks are flooding the nation's capital with reports and statistics arguing for and against reducing Medicare spending on hospital care:
The American Hospital Association released a report saying Medicare profit margins are an unreliable measure of hospitals' fiscal health (See story, p. 3).
Hospital allies in Congress wrote to the White House opposing a plan to trim Medicare hospital spending in fiscal 2000 (See story this page).
The Medicare Payment Advisory Commission recommended a 0.7% increase in Medicare hospital payment rates, despite record hospital margins on Medicare inpatient care (See story, p. 8).
Last year's increase in net revenues as measured by the Labor Department could bode well-again-for hospitals' overall profitability.
In 1997, when hospitals' net revenues rose only 0.4%, aggregate profits at the nation's hospitals climbed 3% to a record $21.9 billion, according to data from the AHA. That gave hospitals a profit margin of 6.6%-the second-highest margin ever.
Last year's increase in hospitals' net revenues was fueled not just by Medicare but by more money coming from private-pay patients.
Private-pay revenues rose 2.1% on the inpatient side and 1.1% for outpatient care last year. In 1997, net revenues from private-pay inpatients rose 1.9%, while outpatient revenues remained flat.
The increase in private-pay revenues rebuts the hospital-industry contention that hospitals can't make up alleged payment shortfalls from Medicare and Medicaid patients by charging more to patients with private insurance-a practice known as cost shifting.
Hospitals' inpatient revenues from Medicaid dropped 2.2% last year compared with a 1.8% decline in 1997. However, Medicaid outpatient revenues climbed 2.7% in 1998, compared with a rise of 0.8% in 1997.
Meanwhile, the rate of medical inflation rose last year, hitting 3.4%, according to the CPI released last week. That's up from 2.8% in 1997. At the same time, overall inflation dipped to 1.6% last year from 1.7% in 1997.
Unlike the PPI, the CPI measures changes in retail prices charged to consumers.
Hospital associations say their members are not making huge profits from Medicare despite what government figures show.
"I have no doubt that the screaming I am hearing is real," said Thomas Scully, president of the Federation of American Health Systems, which represents for-profit hospitals.