Introduction
Medicare has long been a key source of revenue for hospitals in the United States. However, in recent years there has been a perception that hospitals are increasingly unhappy with Medicare payment rates and policies. This raises the question – do hospitals not like Medicare anymore? There are a few key factors driving this perception:
Declining Medicare Reimbursement Rates
Medicare reimbursement rates have been steadily declining for years. Studies show that Medicare pays hospitals only 87 cents for every dollar spent caring for Medicare patients. This represents a major gap that hospitals must make up through other revenue sources. Some key stats on declining Medicare hospital reimbursement:
- Between 2010 and 2019, Medicare reimbursement for hospital inpatient services fell by 12% after adjusting for inflation.
- Reimbursement for outpatient services fell by 18% during the same period.
- Overall Medicare margins for hospitals declined from -4.8% in 2010 to -9.8% in 2018 according to MedPAC data.
Underpayment from Medicare Relative to Private Insurers
Not only are Medicare reimbursement rates falling in absolute terms, but Medicare also pays significantly less than private insurers for the same services.
| Payer | Average Cost-to-Charge Ratio |
|---|---|
| Medicare | 0.9 |
| Medicaid | 0.88 |
| Private Insurance | 1.45 |
As this data shows, Medicare pays hospitals 90 cents for every dollar charged, compared to 145 cents from private insurers. This underpayment gap has widened over the past decade as private reimbursement has risen.
Increasing Regulatory Burdens
In addition to declining reimbursement, hospitals complain about increasing regulatory requirements under Medicare which add to administrative costs. This includes complex documentation rules, quality reporting programs, and value-based purchasing requirements. A 2019 American Hospital Association survey found that hospital executives believe regulatory burdens account for 25% of total hospital costs.
Why Hospitals Can’t Live Without Medicare
While the issues above paint a bleak picture, the truth is hospitals simply can’t live without Medicare. Here’s why:
- 37% of national hospital payments come from Medicare, making it the largest source of hospital revenue.
- Private insurers often benchmark their own reimbursement rates to Medicare’s, so declining Medicare rates pull down private payments too.
- Many hospitals would not be viable without Medicare, which covers seniors regardless of health conditions.
- Hospitals have limited leverage to negotiate higher rates due to Medicare’s dominant market share.
Despite reimbursement challenges, hospitals depend on Medicare. This dependence gives Medicare huge leverage in setting payment policies.
Hospital Strategies for Coping with Medicare Pressures
Facing Medicare’s downward pressure, hospitals are pursuing strategies like:
- Claiming bad debt reimbursement for uncollectable Medicare patient obligations
- Appealing underpayments and denied claims
- Focusing on outpatient services which are reimbursed at a higher rate
- Improving coding and documentation practices to maximize reimbursement
- Controlling costs through initiatives like reducing length of stay
- Seeking higher reimbursement rates from private insurers
However, despite these efforts, Medicare margins remain thin and the future is uncertain. This puts significant financial pressure on many hospitals.
What’s Next for Medicare Hospital Reimbursement?
Looking ahead, Medicare hospital reimbursement faces uncertainty:
- Scheduled cuts from the Affordable Care Act have been repeatedly delayed, but pressure remains to implement them.
- Budget sequestration cuts are scheduled to return in 2023 unless Congress intervenes.
- Proposals exist to more closely peg updates to hospital cost data, which could further limit increases.
- Value-based payment models like bundled payments may create more reimbursement risk for hospitals.
Hospitals will continue lobbying for relief from scheduled Medicare cuts and future changes that threaten revenues. However, with Medicare’s financial outlook uncertain, payment pressures are unlikely to ease. Hospitals will remain dependent on Medicare and need to adapt to this challenging environment.
Conclusion
While hospitals are clearly frustrated with Medicare payment rates and policies, they have little choice but to continue participating in the program. Medicare represents too large a share of revenues for hospitals to walk away. However, the status quo means thin margins that jeopardize the financial health of many hospitals. Policymakers face the challenge of balancing Medicare’s savings goals with the need for adequate funding to preserve access to care. Absent other changes, Medicare payment pressures represent an existential threat to many hospitals in coming years.