Profits? What profits? That's the message the American Hospital Association is taking to Capitol Hill as it faces the prospect of a White House fiscal 2000 budget that could call for squeezing at least $10 billion more from Medicare hospital payments.
The AHA recently sent to all members of Congress a report from a 23-member advisory panel the association convened last year suggesting that neither the margins that hospitals earn on Medicare inpatient stays nor the total profits are necessarily the best way to measure hospitals' financial health.
Fat Medicare inpatient margins frequently are cited when Congress or the White House attempt to trim hospital payments, as is likely this year. According to the Medicare Payment Advisory Commission, inpatient margins were at a record 16.1% in 1997 and are projected to be 15.9% in 1998 and 15.7% in 1999 (Jan. 4, p. 8).
Hospitals' aggregate total profit margin, which accounts for revenues from all sources, was 6.6% in 1997, only slightly lower than the record-setting year of 1996, when that margin hit 6.7%, according to the AHA's own data (Jan. 11, p. 2).
And last week the U.S. Labor Department said hospital revenues rebounded last year, in part because of growth in Medicare inpatient and outpatient revenues (See story, p. 2).
Despite the picture of fiscal health that those numbers paint, the AHA is asking Congress to take into account such measures as financial liquidity, cash flow and debt burden.
Only after considering those indicators should Congress decide whether hospitals are so healthy they can withstand another round of cuts just two years after Congress took billions of dollars out of projected hospital payments, the AHA said.
The report, however, did not offer what those particular variables show.
"This is something we're going to be talking about," said Carmela Coyle, the AHA's senior vice president for advocacy and representation. "I think it's even more important now as the White House considers even more Medicare and Medicaid cuts and as people misuse inpatient margins to say that all hospitals are doing well. Margin indicators alone don't tell you as much as you need to know."
The AHA's approach is reminiscent of its efforts to head off a one-year freeze on Medicare inpatient hospital payment rates as Congress and the White House drafted the Balanced Budget Act in 1997.
Back then, the AHA called a press briefing and brought in two healthcare economics experts to spread the same message (May 5, 1997, p. 2). In the end, the freeze was endorsed by Congress and the White House.
Some healthcare experts struck a cautious chord in assessing the hospital profit data, however, since those numbers show financial performance before the balanced-budget law was passed.
But Stuart Guterman, deputy director of MedPAC, added that he doesn't think the use of the Medicare inpatient margins is misleading. "Whatever else is going on, if hospital revenues are clearly exceeding their costs in any given year, they've had a good year," he said.