Study: Leveling reimbursement at Medicare rates could slash hospital revenues by 35%

Hospital revenues would plummet if they were paid broadly at Medicare rates, a new study shows. 

Researchers at Harvard Medical School estimate that average revenues would drop by 35% if payments from commercial payers were set at Medicare levels, according to the data published in Health Affairs.  

Boosting Medicaid payments to meet Medicare rates would not offset the declines substantially, as average revenues would likely decline by 30%, according to the study. 

However, there is significant variability between states in how such changes would impact revenue. In New Hampshire, for example, revenues would decrease by 40%, while in Michigan they would instead decline by 21%. 

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There is a massive gulf between Medicare rates and those paid by commercial plans. The researchers found reimbursement rates in commercial plans to be double that of Medicare for inpatient and outpatient services and 60% more than Medicare for professional services. 

Due to this significant divide, there’s been notable pressure on policymakers to address reimbursements and mitigate that difference, including calls to set all payments at Medicare rates. 

The researchers say that while a uniform payment rate would have some positive trade-offs, such as lower administrative costs and increased efficiency, the financial impacts would be potentially severe for many providers. 

As such, efforts to bring Medicare and commercial payments into closer alignment must be designed to avoid potentially unintended consequences related to severely slashing provider payouts. 

“The core challenge is how to balance the obvious need for action with the potential associated deleterious consequences,” the researchers wrote.