While hospitals continue to blame Medicare for their financial struggles, a congressional advisory panel last week repeated its argument that private insurers share some of the fault.
The Medicare Payment Advisory Commission sent congressional aides a memo arguing that hospitals should be enjoying higher total margins because they've shortened the length of hospital stays and consequently saved money.
But those financial gains haven't materialized because private-sector payers have cut their payments.
Obtained last week by Modern Healthcare, the memo affirmed MedPAC's recommendation that hospitals don't need a bigger boost to their Medicare inpatient payments than what's called for under legislation enacted last year.
The law as it stands calls for an increase of only 0.55 of a percentage point less than the rate of hospital inflation, as measured by the marketbasket index.
The memo is one of a series of documents published by MedPAC this year that rebut some of the hospital industry's arguments that Medicare payment policies have hurt hospitals financially.
The memo, written by MedPAC analysts Jack Ashby and Jesse Kerns, looked at how shorter hospital stays affected hospital bottom lines. The memo said the average length of stay for a Medicare inpatient fell 33% to 5.9 days in 1999 from 8.6 days in 1989. By comparison, the average length of stay for all inpatients fell 20% in the same period, although the memo didn't say what those averages were.
The drop in the Medicare length of stay was driven by imposition of the inpatient prospective payment system, which pays hospitals a fixed rate per discharge. That gives hospitals an incentive to discharge patients before their costs exceed the amount that Medicare pays for the stay, the memo said.
And while Medicare payment increased 11% behind inflation in hospitals' costs over that time, the reduction in costs resulting from the shorter hospital stays more than made up for the tighter payments, the memo said.
As a result, hospitals' aggregate Medicare inpatient income rose 14 percentage points during the 1990s, from a loss of 1.5% in 1990 to a profit of 12% in 1999, peaking at a positive 16.9% in 1997.
"By reducing hospitals' costs, declines in length of stay have played a major role in this improved financial performance," the memo said.
Carmela Coyle, senior vice president for policy at the American Hospital Association, said the memo overstates hospitals' financial gains. She said MedPAC's annual recommendations on Medicare payment updates always assume that hospital stays are decreasing, and the panel reduces its update proposals accordingly.
Hospitals didn't necessarily profit see it in their bottom lines, however. While Medicare increased its burden, private payers didn't continue to pull their weight.
In 1992, private payers paid $1.31 for every dollar it cost hospitals to care for those patients. But by 1997, that had dropped to $1.18.