- Hospitals with a higher share of Medicare patients had lower profits and were more likely to be acquired or close compared with hospitals less dependent on Medicare, according to a new study from Health Affairs. The findings are likely to affect commercial prices, according to the report.
- The report analyzed Medicare inpatient discharges between 2010 and 2016, operating margins and calculated Altman Z scores — a measure that helps predict hospital bankruptcy — to assess financial health for nearly 3,000 general acute care hospitals in the U.S.
- Hospitals with higher Medicare discharges were more likely to be nonteaching facilities in rural areas with fewer beds. They were also more likely to be in counties with an older and slower-growing population.
The study's findings pose challenges for policymakers. Researchers caution that they should not view these results as a reason to avoid reducing Medicare reimbursement.
"Paying more than needed for most care to preserve access to some care and to forestall consolidation-induced commercial price increases would exacerbate the fiscal challenges facing Medicare," the researchers wrote.
Instead, researchers said policymakers should address consolidation in the industry through antitrust enforcement and consider regulation to limit commercial price increases.
The study challenges a commonly held belief in the healthcare sector: Hospitals tend to raise commercial prices to make up for lower reimbursement from Medicare and Medicaid, a practice known as cost shifting.
The paper argues that prior analysis has not considered how public prices can affect the number of hospitals operating in a market, which can ultimately affect commercial pricing. The researchers argue it's more nuanced than just cost shifting, but instead "consolidation-induced cost shifting."
Researchers warn that "reductions in public prices must be undertaken cautiously. Mechanisms to limit closure- or acquisition-induced increases in commercial hospital prices may be important."
These findings come as public insurance programs are likely to face increased financial pressure, which the pandemic has only exacerbated.
The Congressional Budget Office expects the Hospital Insurance Trust Fund to become insolvent two years earlier than previous forecasts due to COVID-19. The fund, which finances Medicare Part A, is now expected to be insolvent by 2024.
At the same time, the nation's population is skewing older and a growing number of adults will be eligible for Medicare. Plus, a record number of people are now covered by Medicaid and the Children's Health Insurance Program.