Like the temperatures across the nation, prices at some hospitals have surged this month. And the culprit, say those responsible for the unprecedented midyear rate hikes, is the Balanced Budget Act of 1997.
In fact, some profitable hospitals appear to be using the law's Medicare spending limits as a justification for raising prices.
Eighty-five bed Campbell County Memorial Hospital in Gillette, Wyo., is raising its rates by 4.5% this month and putting a chunk of the blame on Medicare payment limits in the budget law. The same hospital enjoyed a multimillion-dollar profit this past year. But Campbell County is not alone in pointing to Medicare shortfalls to justify steep rate hikes. A growing chorus of other hospitals are heralding increases.
When the 1997 act was enacted, the Congressional Budget Office estimated the law would reduce hospital payments by $115 billion over five years. Since then, the American Hospital Association has released a report projecting that the law will reduce payments by an additional $71 billion.
Administrators at Campbell County Memorial could not quantify the budget-law-related impact on the facility, except to say that they expected a 5% decrease in overall Medicare reimbursements.
"We've been trying to cut expenses and stuff to keep the bottom line somewhere in the plus side," said Chief Executive Officer Dave Crow.
That plus side is a healthy $6.1 million profit on $31.6 million in revenues during the 11 months ended May 30. That's a 19.3% profit margin, or nearly three times the aggregate 6.6% margin that hospitals nationally enjoyed in 1997, according to the latest figures available from the AHA.
"This year, with the Balanced Budget Act and the way things are looking with Medicare, we're going to get a half-percent increase in our price structure," Crow said. "We've taken a large hit with home health during the last couple of years, so we had to offset those types of losses with increased prices."
Another profitable provider using the budget law as rationale for a price hike is 485-bed University of Wisconsin Hospital and Clinics, which last week announced a 9.1% increase in its patient charges, the largest price hike since 1996, when the Madison hospital became independent from the state.
"This certainly is in many ways a direct response to a couple of things; one is the reduction in payments that we're receiving from Medicare as part of the Balanced Budget Act," said Linda Brei, director of public affairs for the hospital.
The hospital had an estimated $10.8 million in net income on $348.3 million in net patient revenues for its 1998-1999 budget year, according to hospital figures.
But Brei said the issue is broader than one of profit or loss. She said the hospital has already lost $4 million in reimbursements because of the federal budget law and stands to lose another $4 million over the next two years.
Gundersen Lutheran Medical Center, in La Crosse, Wis., also is planning its first midyear rate increase, to offset federal and state reimbursement pressures. The not-for-profit system will raise its rates 7% Aug. 1, following a 6.9% increase announced last December, according to a news release that cites the 1997 budget law as a big challenge.
During calendar 1998, the 286-bed hospital posted net income of $330,489 on net patient revenues of $138.3 million, according to Wisconsin's Department of Health and Family Services.
Despite its modest profitability, the system has experienced slipping operating margins attributable to the budget law, said Philip Dahlberg, M.D., president of Gundersen Lutheran. System analysts estimated its budget-law-linked losses to be $20 million over five years.
Nationally, the average hospital price per discharge, adjusted for case mix, rose 2% between 1996 and 1997, and it went up 1.3% between 1995 and 1996, said William Cleverley, president of the Center for Healthcare Industry Performance Studies, in Columbus, Ohio.
This so-called sticker-price indicator is likely to rise more this year, possibly by 3.5% or 4%, in part because of the 1997 federal budget law, he predicted.
Hospitals have to look at their underlying cost structures to figure out how to make ends meet, and they must keep their profits up to attract favorable bond ratings, said Carmela Coyle, the AHA's senior vice president of policy and deputy director of government and public affairs.
The AHA is lobbying for a variety of bills now pending in Congress that seek to redress payment cuts in the budget law (See story, p. 8). The AHA and other national hospital lobbies have blamed the budget law for service and personnel reductions at hospitals across the country.
As for the price hikes, Coyle said, "It's not a surprising reaction to the fact that the Medicare program is no longer covering the cost of treating Medicare patients. That government funding has to be made up somewhere."
Congress' Medicare Payment Advisory Commission estimated that Medicare inpatient profit margins reached 16.1% in 1997 and that the all-Medicare margin was 3.6%. From 1998 to 2002, Medicare margins will range between 1.2% and 3.1%, according to a May 17 memo from MedPAC to Capitol Hill staff.