Margins on hospital Medicare business are expected to deteriorate this year, bottoming out at a negative 9% on average, according to a report by the commission that advises Congress on Medicare payments.
But the good news is that hospitals are making healthy profits and surpluses overall on the strength of productivity gains, cost-cutting and their commercial business, the Medicare Payment Advisory Commission said in a little-reported study in March.
In fact, hospitals on average posted margins from all payers of 7.3% in 2014, a 30-year high, the MedPAC report shows.
“It's a golden age for hospitals,” said Paul Hughes-Cromwick, co-director of the Center for Sustainable Health Spending at the Altarum Institute.
Falling Medicare reimbursement—and penalties for readmissions and missing quality metrics—have prompted hospitals to get leaner under the Affordable Care Act and recent reforms from the CMS, Hughes-Cromwick said.
Those reforms, including a 0.8% payment reduction to recoup overpayments from incorrect coding in the past, are expected to cause the average Medicare margin at hospitals to fall to negative 9% this year from negative 5.8% in 2014.
Yet, hospitals are more than counteracting those cuts with streamlined operations that are turning commercial contracts into money-making machines.
“Hospitals are making a killing on commercial insurance,” Hughes-Cromwick said.
For next year, the CMS has proposed almost doubling the payment reduction for past hospital Medicare overpayments to 1.5%.
Not all hospitals are losing money on their Medicare business, the MedPAC report shows.
The 302 most-efficient hospitals in the country eked out a 1% margin on their Medicare business, MedPAC said. On average, they had 5% lower readmissions, 12% lower 30-day mortality rates and standardized costs 9% lower than the nationwide average.