Payment shifts and regulatory mandates are putting hospital Medicare margins on a downhill slope. Hospital executives say the chasm between the two has widened in recent years due to a number of factors: federal mandates to deploy expensive health information technology systems under the meaningful use program, a 2% across-the-board cut to provider Medicare payments under the Budget Control Act of 2011, reductions in Medicare disproportionate-share hospital payments and the move to alternative-payment models. Layoffs and reductions in services have been common coping mechanisms to avoid the income drop
While expanded coverage is a net positive, hospital leaders still complain that the government payment programs do not cover costs. For Medicare, hospitals received 88 cents for every dollar spent caring for beneficiaries in 2015 and 90 cents for Medicaid patients, according to the American Hospital Association. Combined underpayments from the government programs were $57.8 billion in 2015. This includes a shortfall of $41.6 billion for Medicare and $16.2 billion for Medicaid, the association reported.
Attempts to move Medicare from a fee-for-service system to a value-based model pose perhaps the most serious challenge to hospitals and health systems struggling with low Medicare margins.
In 2015, the Obama administration announced it wanted 30% of payments for traditional Medicare benefits to be tied to alternative-payment models such as accountable care organizations by the end of last year and 50% by the end of 2018.
The first goal was met, but since the Trump administration took over in January, CMS officials have been coy about their own goals for the shift beyond noting they want the move to be voluntary.
Overall, hospital leaders believe they are getting mixed messages from the Trump administration over whether it still supports the move away from fee-for service Medicare, given that it has canceled or scaled back several new pay models created under the Obama administration.
There are things Congress can do to stabilize and lessen the financial pressures hospitals now face. The Medicare recovery audit contractor program could be overhauled. Under the program, private companies audit the medical records of hospitals and doctors to find instances of improper billing or erroneous payment from the government.
Hospital executives argue that claims are often mistakenly flagged as being improper in some way. Of the claims that have completed the appeals process, 62% were overturned in favor of the provider, according to the AHA. The association found that 43% of all hospitals reported spending more than $10,000 managing the RAC process during the third quarter of 2016, 24% spent more than $25,000 and 4% spent over $100,000.
Despite those concerns, the program has scored big for the federal government. RACs have recouped $8 billion in improper payments since its inception in 2009, according to the CMS.
The other recurring request from hospitals is that Congress preserve the individual mandate in the Affordable Care Act. A proposal to repeal the mandate is included in the Senate version of tax reform legislation.