America's teaching hospitals, which feared a financial crisis because of curbs on government payments enacted in 1983, made exceptionally high profits on Medicare operations in the first year under the new system, even without counting a special subsidy, according to Health and Human Services Inspector General Richard P. Kusserow.
Kusserow, in an internal memorandum to Medicare officials, said the latest profit figures show that the "indirect medical education" subsidy, which was cut last year, should be reduced further. The Reagan administration has requested such a reduction in its fiscal 1987 budget.
The memorandum said a survey of 327 teaching hospitals in 17 states showed that in fiscal 1984:
*The 327 institutions, nearly one-third of all teaching hospitals in the country, each had an average profit of $2.8 million on inpatient Medicare treatments, or 15.08 percent, not counting any indirect medical education payments from the government. Profit was defined as the difference between government Medicare payments for patient-care treatment and hospital operating costs for patient care.
*The profit for Medicare operations was $3.5 million per hospital, or 18.28 percent, when the indirect medical education subsidies were included. These payments from Medicare were instituted to ensure that the teaching hospitals, the source of advanced clinical training for doctors and other health-care personnel, would not be hindered by the controls on hospital payments that were enacted in 1983.
The indirect subsidies are made to hospitals that treat Medicare patients and give regular training to interns, medical residents and other health-care workers. The survey covered 1984, the first year of the prospective-payment system, which was designed to hold down Medicare payments to hospitals by setting fixed fees for each hospital stay, regardless of length.
*When Medicare profit margins for 104 of the teaching hospitals were compared with those at 104 comparable nonteaching hospitals, the survey found that the teaching hospitals' profits were about one-fifth higher -- 14.97 percent versus 12.39 percent. When the indirect medical education subsidy was included for the teaching hospitals, their profit was 17.46 percent.
*The survey projected that profits from the education subsidy would be larger in the future, because in 1984 the subsidy was paid on only a part of the Medicare payments to hospitals, whereas in the future it will cover the entire Medicare payment, though at a lower rate than in 1984.
An earlier Kusserow survey of 892 teaching and nonteaching hospitals, about one-sixth of all U.S. hospitals, found that the average 1984 profit margin was 14.12 percent, or about triple the average in the preceding years.
Officials of the American Hospital Association, without disputing the numbers in Kusserow's surveys, said yesterday that their figures on hospital profits -- for Medicare and non-Medicare patients in all the nation's hospitals -- are far lower, perhaps because different survey methods were used or because Kusserow might not have used a representative sample.
AHA statistics show patient-care profits of 2 percent for all hospitals in 1984, dropping to 1.5 percent in 1985, according to AHA official David R. Dolkart. Including revenues from nonpatient-care operations, such as parking lots, cafeterias and outside ventures, he said, profits were 6.2 percent in 1984 and 5.9 percent in 1985.
James Bentley, associate director of the teaching hospital department of the Association of American Medical Colleges, said, "I have not seen the Kusserow report and cannot comment on the quality of the work or of the analysis. We had an independent study done, and based on that and the findings of the Congressional Budget Office, we supported the reduction [in the indirect subsidy rate]. We project reduced future revenues for teaching hospitals and do not think further reductions are justified."
Medicare has long helped teaching hospitals pay the costs of teaching programs. Hospitals currently get a "direct payment" for Medicare's share of their identifiable extra costs for running teaching programs -- $1.1 billion nationwide in fiscal 1984.
In addition, hospitals get indirect payments for certain extra costs -- increased overhead, lower productivity on the part of trainees, the tendency of medical residents to order more services and tests than experienced doctors might -- that are hard to quantify separately. In 1984, for each medical resident per 10 beds, a hospital received an extra 11.59 percent from the government for each Medicare patient -- totaling $1.4 billion in 1984. Congress has cut the factor to 8.1 percent from May 1, 1986, to Sept. 30, 1988, and 8.7 percent after that.