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Hospital and Medicare financial performance under PPS, 1985-90
1Office of National Health Statistics, Health Care Financing Administration.
Abstract:
Although an increasing number of hospitals are reporting net losses from the Medicare prospective payment system (PPS) for inpatient care, overall hospital facility profit rates remain stable. Hospitals that reported net profits in the Medicare inpatient PPS sector in PPS 7 (1990) had smaller increases in Medicare expenses than hospitals that reported PPS losses in PPS 7. Medicare PPS inpatient net losses in PPS 7 were more than offset by non-Medicare net profits. Even though Medicare PPS revenues grew more slowly than the gross domestic product from 1985 to 1990, other hospital revenues grew more rapidly.
Insights
Despite Medicare prospective payment system (PPS) losses, hospital profits remain stable due to higher non-Medicare revenue and controlled Medicare expenses. This indicates overall financial resilience in the hospital sector.
Area of Science:
- Health Economics
- Hospital Financial Management
- Public Health Policy
Background:
- Hospitals face financial challenges with the Medicare prospective payment system (PPS).
- There is a growing concern about net losses reported by healthcare facilities under Medicare PPS for inpatient services.
Purpose of the Study:
- To analyze the overall financial performance of hospitals in relation to the Medicare prospective payment system (PPS).
- To investigate factors contributing to hospital profitability despite reported Medicare PPS net losses.
Main Methods:
- Analysis of hospital financial data, focusing on Medicare prospective payment system (PPS) revenues and expenses.
- Comparison of financial trends between hospitals reporting profits and losses within the Medicare PPS sector.
- Examination of the growth rates of Medicare PPS revenues versus other hospital revenues from 1985 to 1990.
Main Results:
- Overall hospital facility profit rates remained stable, even with an increase in reported net losses from Medicare PPS.
- Hospitals with net profits in the Medicare inpatient PPS sector experienced slower growth in Medicare expenses compared to those reporting losses.
- Net losses incurred within the Medicare PPS were compensated by profits from non-Medicare sources.
- While Medicare PPS revenues grew slower than GDP, other hospital revenues demonstrated more rapid growth.
Conclusions:
- Hospital financial stability is maintained through a combination of controlled Medicare expenses and robust non-Medicare revenue streams.
- The Medicare prospective payment system (PPS) does not solely determine overall hospital financial health; diverse revenue sources are critical.
- Hospitals demonstrating better financial management within the Medicare PPS also showed better control over expense increases.