Hospital Medicare margins are projected to drop—big time

MedPAC report projects drop in hospitals' margins on Medicare business

Hospitals in 2016 are expected to see their margins on Medicare business fall to negative 9 percent on average, according to a Medicare Payment Advisory Commission (MedPAC) report, Dave Barkholz reports for Modern Healthcare's "Vital Signs."

In comparison, hospitals saw an average Medicare margin of negative 5.8 percent in 2014.

"Vital Signs" reports that the falling margins result from:

  • Declining Medicare reimbursement; and
  • Other federal policies, such as the move toward value-based payments and a 0.8 percent payment reduction to recoup improper overpayments related to coding errors.

However, the report noted that hospitals on average are making profits and seeing surpluses overall due to margins on commercial business, cost-cutting initiatives, and productivity gains. According to MedPAC, 2014 was a record year, with average hospital margins from all payers hitting a 30-year high of 7.3 percent.

And some of the most efficient hospitals are still seeing positive margins on Medicare business, according to the report. MedPAC found that the 302 most efficient hospitals had a 1 percent margin on Medicare business. Compared with the national average, those hospitals on average had:

  • 5 percent lower readmissions;
  • 9 percent lower standardized costs; and
  • 12 percent lower 30-day mortality rates (Barkholz, "Vital Signs," Modern Healthcare, 4/26).

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