Dive Brief:
- A new analysis from the Congressional Budget Office (CBO) has recognized that changes in laws and regulations, prompted primarily by the ACA--notably reduced Medicare payment updates and expanded insurance coverage--can be expected to significantly impact hospitals' future finances.
- To help provide a sense of the impacts, the CBO's working paper predicted hospitals’ profit margins, and the share of hospitals that could lose money in 2025 under several different scenarios.
- The researchers noted that they provided a wide range of estimates due to "substantial uncertainty" around the predictions and how hospitals will respond to the pressures of the federal healthcare law.
Dive Insight:
The results of the paper suggest the magnitude of the financial impact hospitals will face in the future depends on how much they can improve their productivity over time.
The analysis incorporated not just Medicare cuts and increased insurance coverage, but also factors including other cuts in federal payments to hospitals, and demographic changes that will see more patients shift from commercial coverage to Medicare coverage. It looked at 3,000 hospitals that provide acute care to the general population and are subject to Medicare's payment reduction, leaving out most rural and all “critical access” hospitals.
CBO arrived at the following predictions:
- If hospitals improve their productivity in line with the overall economy, by an average of about 0.8% per year through 2025, the share of hospitals with negative profit margins will rise to 41% and their average profit margin will fall to 3.3%.
- If hospitals improve their productivity by 0.4% per year, the share with negative profit margins will rise to 51% and their average profit margin will fall to 1.6%.
- If hospitals are unable to increase their productivity or otherwise reduce cost growth, the share with negative profit margins will rise to 60% and their average profit margin will fall to -0.2%.
The findings reflect that Medicare payments will depend on overall productivity growth in the economy, the paper noted.
"Consequently, if those hospitals were not able to increase their productivity by enough to fully offset those reductions in payment updates or did not use those productivity gains to reduce the growth of their costs then Medicare’s payments would not keep pace with their costs of treating those patients, and profit margins for those hospitals would decline," the researchers concluded.