MedPAC: Hospitals got $201B in Medicare payments last year, a 3.6% bump from 2017

Medicare spending costs money
Medicare fee-for-service payments to hospitals increased by 3.6% in 2018 compared to the year before, a new MedPAC analysis said. (Getty/zimmytws)

Hospitals got $201 billion in Medicare fee-for-service payments in 2018, a 3.6% increase from 2017 as Medicare is footing the bill for higher drug prices, a new analysis found.

The analysis released Thursday by the Medicare Payment Advisory Commission (MedPAC) comes as the panel is debating a recommendation to Congress to increase base Medicare payments to acute care hospitals by 2%.

While payments to hospitals overall grew by 3.6% last year, payments for outpatient services increased by 7.2% under Medicare’s Outpatient Prospective Payment System. The reason for the hike was due to increases in physician-administered drugs in Part B and new and expensive drugs.

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Another reason was hospitals shifting services from inpatient to outpatient departments, especially as hospitals seek to shift business from physician offices to off-campus facilities.

The Centers for Medicare & Medicaid Services (CMS) has tried to cut payments to hospital off-campus departments to better bring them in line with payments to physician offices, but a court ruling struck down those payments.

Medicare payments under the Inpatient Prospective Payment System (IPPS) also grew last year. MedPAC reported 2.9% growth in IPPS payments per stay in 2018 compared to 2017.

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MedPAC also found that the overall profit margin for Medicare payments and costs increased slightly from negative 9.9% in 2017 to negative 9.3% in 2018. The margin increase is likely due to CMS overestimating price inflation and an increased revenue from Part B drugs.

For-profit hospitals also had a much higher Medicare margin at negative 0.9% in 2018 compared to nonprofit hospitals at negative 10.6%.

MedPAC staff gave a recommendation to Congress that in 2021 Medicare base payment rates for acute care hospitals by 2%.

The draft recommendation seeks to balance imperatives that include “maintaining payments high enough to keep access to care, improve long-term sustainability and consistent with its site-neutral work,” said MedPAC staffer Stephanie Cameron.

MedPAC committee members will make a final vote on the recommendation during its meeting next month.

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