The American Hospital Association is pushing for provider payment relief in 2003, saying that more than half of its member hospitals lost money on Medicare in 2000 and pointing to a 2001 hospital profit margin that was the lowest since 1993.
But the association is preparing advocacy efforts at a time when its members are not hurting financially, according to the AHA's own annual statistical report of all U.S. hospitals. Hospitals posted an aggregate total profit margin of 4.2% in 2001, slightly less than the 4.6% reported in 2000, according to the report Hospital Statistics 2003 (Dec. 16, p. 9). The report is based on the association's annual survey of all U.S. hospitals.
Aggregate revenue for hospitals grew 7% to $400.6 billion in 2001 from $373.5 billion in 2000. Expenses also grew 7% to $383.7 billion, compared with $356.5 billion in 2000.
The number of hospitals in the U.S. declined slightly to 5,801 from 5,810 in 2000. The number of rural hospitals also fell slightly to 2,167 from 2,175 in 2000.
Despite the 4.2% profit margin reported by its members, the AHA will begin its advocacy strategy by lobbying Congress for hospital payment-relief legislation.
"The numbers in those books continue to tell the story," said Richard Pollack, the AHA's executive vice president. "The field is under stress."
Pollack added: "The margin may be on the plus side on an overall basis, but you still have a drop from 4.6% to 4.2%. A positive margin does not suggest hospitals are fully equipped to meet the challenges of the future."
Higher costs for labor, technology, medical liability insurance and bioterrorism preparedness played a role in the smaller margin in 2001, the AHA said.
About one out of every three hospitals lost money in 2001, Pollack said. The hospitals in the red will have challenges investing in patient-safety initiatives, terrorism preparedness, and reinvesting in aging facilities, among other problems, he said.
Hospitals were losing money even as patient capacity was on the rise. Total hospital admissions increased 2% to 33.8 million, while the total aggregate of inpatient days rose 1%. Emergency room visits increased 3% to 106 million. The average length of stay, however, dropped to 5.7 days from 5.8.
"That is a positive margin that is dropping," he said. "It masks the number of hospitals that are in trouble."
Some observers have a different take on the numbers. The Medicare Payment Advisory Commission, a congressional advisory panel that has argued in the past that Medicare isn't fully responsible for hospitals' financial troubles, issued its National Hospitals Indicators survey of smaller hospitals through the third quarter of 2002.
In that survey hospital profit margins continued in the 4% range and have remained steady since peaking at 6.1% in 1996, said Jack Ashby, the commission's hospital research director. "We are seeing a fairly steady financial picture," Ashby said. "They are not backtracking and neither are they gaining. Things are fairly stable."
MedPAC issued a preliminary recommendation to provide hospitals with an inpatient payment update 0.4% less than inflation for fiscal 2004 (Dec. 16, p. 4). The commission expects to issue its formal recommendations at a meeting in January.
The AHA believes MedPAC is going in "the wrong direction," Pollack said. "It is inconceivable to us why hospitals should not get the full inflationary increases given the challenges we face in the market and the rising costs of caring," he said.
To be successful with Congress, hospitals must develop a strategy to explain to legislators the challenges facing the industry, such as the rising amount of uncompensated care, despite the positive margin, said Rep. Nancy Johnson,(R-Conn.), chairwoman of the House Ways and Means health subcommittee.
"They are facing a more volatile cost environment," she said. "Hospitals that need to make adjustments need to make those cases to elected officials."
The AHA will propose new legislation that is aimed at improving Medicare reimbursements to providers. Sens. Jon Kyl, an Arizona Republican, and Jeff Bingaman, a New Mexico Democrat, both members of the Senate Finance Committee, are circulating a letter encouraging leaders to enact provider payment legislation.
In their letter, the senators are urging fellow lawmakers to repeat congressional action in 2000 when the House and Senate compromised on legislation and passed the Medicare, Medicaid and SCHIP (State Children's Health Insurance Program) Benefits Improvements Protection Act.
"Our hope is they could reach an agreement on a relief package," Pollack said. "That is not unprecedented." Last year, hospitals got $14.3 billion from a $30 billion proposal passed in the House and $18 billion from a $43 billion Senate proposal.
"We think that where Congress left off is where they should pick up," he said. "Those are recent benchmarks for payment relief. The dynamics have changed."
Johnson is hoping a payer package is introduced by the end of January. "Every payer group should be talking to their members about what their situation is," Johnson said. "It is a complicated picture."
Medicare and Medicaid provider relief is "getting incrementally worse," especially after the passage of the Balanced Budget Act, he said.
Medicare pays less than 100% of costs, while nearly 60% of hospitals lost money on the Medicaid program, Pollack said.
Pollack said passing payment-relief legislation is the main priority for 2003. "The problems that have existed before have not gone away," he said. "We are hopeful there will be efforts to revisit those issues."
