Medicare is probably paying hospitals too much for inpatient services, according to research by the Medicare Payment Advisory Commission.
MedPAC released the report at a meeting Friday, just hours after the House Ways and Means health subcommittee passed legislation increasing Medicare payments to hospitals (See story, p. 3).
"Medicare inpatient margins have increased dramatically in recent years," Jack Ashby, a MedPAC staff member, told the commissioners assembled in Washington. "The move toward outpatient services has lowered the cost of those services, but the (Medicare) inpatient payments may not be reflective of that."
In 1997, hospitals' Medicare inpatient profit margins rose to 16.1%, according to MedPAC data.
The commissioners are considering whether to change the base DRG payments to hospitals for inpatient care. Changing the payments would be one way to get closer to the aggregate cost of the service.
MedPAC is also pondering a change in the way Medicare pays teaching hospitals for graduate medical education.
In August, the commission proposed combining Medicare's indirect medical education payments with its direct medical education payments. The combined payment would better reflect the "enhanced patient care" that teaching hospitals can provide to Medicare beneficiaries.
The American Association of Medical Colleges opposes such a change.
MedPAC staff could not find empirical data to prove that teaching hospitals generally provide better patient care than nonteaching facilities provide for the same services.
The absence of solid evidence left the commissioners struggling with how Medicare should pay for something that is intangible.
"The literature supports that we're getting something of value (from teaching hospitals), but what do we do about the payment system?" said Joseph Newhouse, a Harvard University economist and vice chairman of MedPAC.