Medicare, Medicaid hospital payment cuts to hit $252.6B, industry study finds

Link to original article from HealthcareDive

Dive Brief:

  • Reductions in federal payments to hospitals will total $252.6 billion from 2010 through 2029, reflecting the cumulative impact of a series of legislative and regulatory actions, according to a new study from Dobson DaVanzo & Associates, a health economics and policy consulting firm.
  • The American Hospital Association and the Federation of American Hospitals, which commissioned the study, denounced the impact of the payment reductions on hospitals’ financial health.
  • The report quantified the cumulative impact of payment reductions mandated in 12 legislative acts and numerous regulatory changes from CMS to reach the total dollar amount, which included federal payments for inpatient and outpatient acute care, freestanding inpatient rehabilitation, long-term care hospitals, inpatient psychiatric units, hospital-based rehabilitation, skilled nursing and home health.

Dive Insight:

Hospital advocacy groups have long argued that cuts in Medicare and Medicaid payments hurt the fiscal well-being of their members, and executives reiterated those concerns Tuesday.

“Hospitals are nearing the tipping point we have predicted for so long. The disruptions that come with Medicare and Medicaid cuts of this magnitude have a real-world impact on our ability to deliver the vital services to the patients and the local communities that depend on us,” Chip Kahn, FAH president and CEO said in a statement.

AHA CEO Rick Pollack echoed that concern.

But recent analyses of hospital finances paint a more complex picture. In addition to Medicare spending cuts, hospitals also face declining service volumes, rising costs, and a shrinking payer mix as more baby boomers shift from commercial insurers to Medicare.

A report earlier this year from Fitch Ratings predicts the third straight year of declining profitability for the nonprofit hospital sector. However, the ratings firm also said the decline in profitability won’t be as steep as the previous two years.

Fitch Ratings said that hospital managers who increase operational efficiencies and reduce costs could fare well under Medicare’s reimbursement structure, particularly as the number of older patients — and their typically higher service utilization — increases over the next decade.

A Kaufman Hall flash report earlier this year said that while overall hospital profitability declined for the first time this year in June, some hospitals did well. Hospitals with 500 beds or more saw an increase in pre-tax profit margins for the third consecutive month, which the report attributed to increased revenues. Smaller hospitals (fewer than 25 beds and 200-299 beds) also had improved margins, which was connected to increased inpatient volumes. However, mid-sized hospitals (300-499 beds) saw the biggest decline in profitability, while those in the 100-199 bed range also struggled.

The Dobson DaVanzo study analyzed the total impact of a series of budget acts mandating across-the-board cuts in federal spending, including a 2% reduction in Medicare payments; reductions in Medicare reimbursement to hospitals for bad debt; payment reductions in post-acute care, limitations on inflation-based payment increases in home health; adjustments to Medicare Severity diagnosis‐related groups (MS‐DRGs) payments; reductions in Medicaid disproportionate share payments; and other legislative changes.