What do PPS margins mean? Different things to different groups

Since the inception of Medicare's prospective payment system (PPS) in 1983, the interpretation of Medicare PPS operating margins has generated much debate and confusion. Numerous estimates often show considerable range from the highest to the lowest within roughly the same time periods. In almost all instances the reason for these differences is attributable to elements of the study design. In this article adapted from a paper he wrote for The Catholic Health Association, Allen Dobson identifies and describes the legitimate reasons for differences among studies of Medicare PPS operating margins. His paper provided a useful framework for reviewing studies of this type. He determined that three sets of factors--statistical, methodological, and interactive--influence the magnitude of margin estimates. Dr. Dobson concluded that the various margin estimates all show essentially the same thing: Margins under PPS have fallen significantly and are likely to continue to do so as long as actual case costs rise more rapidly than actual case revenues. By PPS year 6, few types of hospitals are likely to receive adequate funds from Medicare to cover their expenses.