A Health and Human Services study has concluded that hospital profits from Medicare dropped sharply in 1986, and Rep. Fortney H. (Pete) Stark (D-Calif.) says the hospitals have no one to blame but themselves.
HHS Inspector General Richard P. Kusserow found that hospital profits on Medicare inpatients dropped from about 14 percent of revenue in 1984 and 1985, the first two years of Medicare's new flat-payment-per-case-system, to 9.56 percent in 1986.
He said that despite the decline, 1986 was a "profitable year" for the industry overall, although one-third of all hospitals operated at a net loss on Medicare and rural hospitals as a group suffered a net loss.
Another federal agency, the Prospective Payment Assessment Commission (PROPAC), reported a similar drop for the industry as a whole on Medicare patients in a study of its own a few weeks ago.
The studies blamed the profit drop on rapidly rising hospital costs, which are outstripping inflation.
Stark, chairman of the House Ways and Means subcommittee with jurisdiction over Medicare payments to hospitals, said that while he is concerned that hospital margins on Medicare may actually drop below zero in the next few years, "the finger of blame for this situation should be pointed at the hospital managers who have let costs rise at a rate almost three times the rate of inflation in the prices of goods and services hospitals must purchase."
Meanwhile, Senate Finance Committee Chairman Lloyd Bentsen (D-Tex.) has sharply attacked the Reagan administration for demanding added cuts in Medicare.
Bentsen, in a letter to Office of Management and Budget Director James C. Miller III, said news reports and documents indicated that President Reagan's fiscal 1989 budget will seek cuts of $1.25 billion more in Medicare outlays than had been agreed upon in the budget "summit" between congressional leaders and the White House last November.
The reason for the reported cuts, according to Bentsen, was "your assessment" that the program changes outlined in the meetings did not achieve the dollar savings anticipated, based on OMB calculations.
Bentsen, paralleling a position previously expressed by House Ways and Means Chairman Dan Rostenkowski (D-Ill.), said he views the expected request for further cuts as leading to an "unraveling" of the summit agreement and indicating that "our deal was not a deal insofar as the president is concerned." He noted that the summit participants after "considerable deliberation" had agreed to use Congressional Budget Office calculations.
The Kusserow and PROPAC studies could have a direct bearing on the dispute about further Medicare cuts.
Kusserow's findings suggest that the unsually high profit margins of the first two years of the new flat-payment system are beginning to fall, as hospitals had predicted, for two reasons: congressional restraint on annual increases in the rate, which have been raised far less than needed to keep pace with inflation in the costs of things hospitals buy; and continuing cost increases in hospital operations.
The high 1984-85 profit margins had been used as a justification for refusing higher raises in the rates Medicare pays hospitals. Falling profit margins will be used by the hospitals as an argument against a continued clampdown.
Kusserow's study found that profit rates in 1986 averaged 10.82 percent for urban hospitals, but rural hospitals overall suffered a net loss of 0.69 percent on Medicare operations.
Analyzing the data another way, he found that teaching hospitals averaged 13.13 percent on Medicare inpatient operations while nonteaching hospitals averaged 5.8 percent.
In another calculation, he found that for-profit hospitals had a profit of 10 percent of revenue on Medicare inpatient operations, while nonprofit hospitals had a net surplus of 9.5 percent of revenue.
Kusserow's study said hospital profits on Medicare inpatient operations totaled $4.6 billion in 1984, $4.9 billion in 1985 and $3.6 billion in 1986.