Intense pressure from the $719 billion Medicare program on the finances of U.S. hospitals promises to worsen in the years ahead. To prevent an already bad situation from getting worse and possibly even threatening their institutions’ viability, leaders of hospitals must take action in five areas: using analytics to identify ways to improve profitability, curbing the costs of corporate services, tightening the purchase and use of medical technology, developing standard clinical protocols for treating conditions, and pushing physicians to adhere to them.
The losses of U.S. hospitals from treating Medicare patients escalated sharply in 2012, when Congress included Medicare in its budget sequester, and they have remained high since. About three-fourths of short-term acute-care hospitals lost money treating Medicare patients in 2016, according to the Medicare Payment Advisory Commission (MedPAC), an independent agency established to advise the U.S. Congress on issues affecting the Medicare program.
Hospitals have been losing nearly three times as much caring for Medicare patients as they have caring for their Medicaid patients, traditionally the worst paid-for insured-patient group. While the average hospital profit margin on Medicare patients has been relatively steady at negative 10%, it is closer to negative 18% for the three-quarters of hospitals that lost money on their Medicare business.