In the crosshairs of ProPAC’s scope?
In the crosshairs of ProPAC’s scope?
Medicare freeze may push hospitals to the brink
Is your hospital targeted for Medicare cuts? The executive director of The Prospective Payment Assessment Commission (ProPAC) in Washington, DC, Donald Young, has defined some of the nation’s hospitals as rich targets for cost cutting and reduced payments. Others, ProPAC says, can function very well with no increases. Where does your hospital stand? Can it sustain a Medicare freeze or cut in money for fiscal year 1998?
ProPAC presented data to Congress March 1 recommending such moves. Why? Hospitals can afford to take a freeze, stated the Report and Recommendations to the Congress.
"The recommendation causes us great concern," says Carmela Coyle, vice president for policy at the American Hospital Association in Washington.
The government is working to control Medicare spending. As it now stands, President Clinton’s Medicare budget would give hospitals a modest 1.8% boost in base payments. At a Washington Health Press briefing on the recommendations late in February, Young proposed that hospitals in rural areas not yet affected by health maintenance organizations and other managed care plans are especially ripe for cost-cutting.
After tracking hospital financial trends for a number of years, said Young, the "absolutely extraordinary" result has been a drop in cost growth. ProPAC’s report states that hospital profit margins grew from 4.4% in 1993 to 5% in 1994 and 5.6% in 1995. It also states that budget cuts over the past few years have forced hospitals to become more efficient by, for example, finding purchasing deals for supplies. "From 1985 to 1991, PPS [prospective payment system] payments per case increased at a slower rate than corresponding per case operating costs," states the report. (See charts above and on p. 66.)
Some hospitals rely on bake sales
Hospital Peer Review asked Coyle about those statistics. She says, "ProPAC’s recommendation for a zero increase for inflation for Medicare payments is based on a premise that hospitals are doing well financially and can withstand a freeze in payment rates. That’s just not so. Some communities are holding bake sales to keep hospitals open.
"Forty percent of hospitals in the United States lose money when they treat Medicare inpatients," continues Coyle, "and 20% are losing money overall. The bottom line is that there’s a lot of variability behind the average numbers that ProPAC looked at when it came to the conclusion that hospitals in the aggregate are doing well. Many are financially troubled, and the zero increase recommended by ProPAC could push them over the brink."
What response will hospitals likely have to funding reductions if ProPAC has its way? "Quality will suffer," says Coyle. "Hospitals that have already cut as much fat as possible will have to begin cutting into muscle, impacting quality patient care. Government payers are already reimbursing hospitals less than their costs. If they cut even further, there have to be consequences." Registered nurses, for example, may have to be replaced by licensed practical nurses, and lengths of stay may have to be further shortened.
"Just over a thousand hospitals get two-thirds or more of their revenue from Medicare and Medicaid," says Coyle. "Those facilities don’t have enough private-paying patients to make up for those payment shortfalls. A hospital with a smaller portion of its business coming from Medicare and Medicaid has other avenues through which it can stay sound."
ProPAC’s recommendation is being considered by Congress and will be factored into its decisions on overall spending and revenue targets for the coming five years. Congress can either accept the recommendation or make another it deems more appropriate. Once Congress decides on a budget, it enacts legislation that makes the changes needed to reach the targets. Budget considerations are normally under way by April 15, but decisions are delayed this year. At press time, the issue of hospital payments still was an open question.
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