Hospitals Face Challenges From Medicare Cost and Payment Trends

A review of the overall hospital admissions over the four-year period of 2011-14 shows 37 percent of the total admissions for each year were for Medicare beneficiaries. ^a   These results underscore the importance of the Medicare population for hospitals and the impact Medicare payments play in a hospital’s overall financial health.

The impact of Medicare admissions on a hospital’s financial well-being can best be understood by analyzing the Standard Analytic File from the Medicare Provider Analysis and Review (MedPAR) files maintain by the Centers for Medicare & Medicaid Services (CMS). This file contains every Medicare admission processed by every short-term, inpatient hospitals in the nation. Within these data are elements that, when added together, show the average expected payments received from CMS for each admission.

The most prominent element in the payment calculation is defined by CMS as the DRG price. This element is defined as the amount that would normally be paid by CMS if there were no deductibles, coinsurance, primary payment, or outlier payments involved. A review of the MedPAR data tables for the most recent five CMS years (2011-15) shows the DRG price accounted for nearly 94 percent, on average, of the total expected payment amount for each admission.

Medicare Admissions Charge, Price, and Cost Analysis: Medicare Provider Analysis and Review (MedPAR) Data, 2011-15

A review of the recently released MedPAR data for CMS year 2015 shows a significant decrease in the DRG price, falling from an average of $11,808 in 2014 to $9,940 for 2015. This decrease represents a potential 15.8 percent decline in the payment amount member hospitals can expect from CMS for each Medicare admission.

At the same time, reported average charges and estimated costs per admission continue to increase to more than $52,000 and $13,400, respectively, per admission. These figures indicate hospitals can expect losses approaching and even exceeding $2,800 for each Medicare admission from the year. Because the number of Medicare admissions averages 11.7 million annually, the potential for significant financial loss is clear.

These findings show why it is critically important for hospitals to carefully manage all aspects of costs associated with Medicare patients. With an average length of stay remaining constant at nearly 5.4 days per admission, the associated charges and costs will continue to rise as represented by the historical data. The reduction in CMS payments will likely lead to a need for aggressive cost containment measures that will likely put a strain on hospitals ability to deliver care for this significant and aging population.

Footnote

Many states collect inpatient admission data from hospitals via a state agency, a hospital trade association, or an outside vendor and, in turn, create and make available nonidentifiable data sets for commercial and academic use. The states range from large to small and span the entire length and depth of the country, providing a comprehensive social, ethnic, and geographic base from which comparisons can be made. This analysis draws on the data collected from these states, combined into a single archive of inpatient hospital data for analytic and benchmarking purposes.

This research and analysis was prepared by Optum Payer Solutions Consulting. For more information, contact Jan Welsh.