Medicare Hospital Margins

The Medicare margin for hospitals continues to fall. A recent report to Congress titled Medicare Payment Policy suggests margins could hit negative 11% this year. That’s more than double what it was (-5.3%) in 2009.


From Modern Healthcare:

The Medicare Payment Advisory Commission has found that hospitals’ Medicare margins are continuing to plummet this year, sparking concerns about seniors’ access to care. 

Hospitals’ aggregate Medicare margin was negative 9.6% in 2016, compared to negative 5.3% in 2009, according to MedPAC’s March 15 report to Congress. Not-for-profit hospitals had the lowest margins that year at negative 11%, while for-profit hospitals had margins of negative 2.4%. 

If current hospital cost trends continue, MedPAC expects aggregate Medicare margins will hit negative 11% this year. 

American Health Line added, “Eventually the difference between commercial rates and Medicare rates will grow so large that some hospitals will have an incentive to focus primarily on patients with commercial insurance,” MedPAC wrote in the report.

MedPAC has recommended that Congress increase Medicare’s rates for acute care hospitals by the amount required by current law, which is expected to be 1.25% for 2019, Modern Healthcare reports. However, MedPAC in the report acknowledged that Medicare can only increase payments so much without accelerating the rate at which Medicare’s hospital insurance trust fund is expected to become insolvent.

The most recent information for Arizona Hospitals can be seen in the graph below. It is taken from 2015 Medicare Cost Reports which shows hospitals had a negative 5% margin in 2015. Although those numbers appear to be better than the national average, they do follow the national trend of falling about double over the past several years.


The MedPac report pointed out, “The gap cannot be closed by increasing Medicare rates 3% or 4% every year as the Medicare Trust Fund would not be able to absorb those price increases. Therefore, commercial payment rate growth must be constrained.”

Share your thoughts on this new report and on how we can turn this tide to stop Medicare hospital margins from falling. Is constraining commercial payment growth rate the answer? Do you have another thought that you believe might work? Let us know. Sharing ideas and working together on the health issues affecting the people of our state is another way we are working toward our long-term goal of one day making Arizona the Healthiest State in the Nation!

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