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March 21, 2018

Medicare hospital margins could hit negative 11% this year, MedPAC says

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    The Medicare Payment Advisory Commission in its March report to Congress said that hospitals' Medicare margins are continuing to drop—a trend the commission warned could limit access to care if it continues, Virgil Dickson writes for Modern Healthcare.

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    According to MedPAC's report, the aggregate Medicare margin for hospitals has declined from negative 5.3% in 2009 to negative 9.6% in 2016. The margin for nonprofit hospitals was negative 11% in 2016, while for-profit hospitals had a margin of negative 2.4%.

    In the report, MedPAC said that it expects aggregate margins to hit negative 11% this year if the trend continues. "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, Dickson writes, which is expected to be 1.25% for 2019. 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 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," the report stated. "Therefore, commercial payment rate growth must be constrained" (Dickson, Modern Healthcare, 3/19; MedPAC report, 3/15).

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