Medicare, Medicaid Payments Off Actual Costs By $75.8B in 2019

Hospitals received just 87 cents for every dollar they spent caring for Medicare patients and 90 cents for every dollar on Medicaid patients in 2019, according to new data from the American Hospital Association (AHA).

In total, the Medicare and Medicaid shortfall reached $75.8 billion right before the COVID-19 pandemic hit the US in the first quarter of 2020, the hospital group reported using data from its Annual Survey of Hospitals.

AHA collects aggregate data on hospital payments and costs associated with care delivery for Medicare and Medicaid beneficiaries each year. The data reveals just how much lower hospital payments from the publicly-funded payers are compared to the real costs of care for treating beneficiaries of the programs, including the amount hospitals pay for personnel, tech ology, and other goods and services required to deliver care. The data does not include with the exception of managed care plans, which negotiate unique rates with hospitals.

In 2019, for example, Medicare underpaid hospitals by a total of $56.8 billion, while the Medicaid shortfall reached an even $19.0 billion that year.

The aggregate shortfall for both payers, however, is slightly lower than the previous total calculated by AHA.

In 2017, Medicare and Medicaid underpaid hospitals by a total of $76.8 billion, which included a Medicare shortfall of $53.9 billion and a Medicaid shortfall of $22.9 billion, the hospital group reported last year.

Prior to 2019, the total shortfall had been growing from $68.8 billion in 2016 and approximately $57.8 billion in 2015.

But most hospitals are finding that Medicare and Medicaid payments are falling short of actual care costs. In 2019, 63 percent of hospitals received Medicare payments less than costs, and 58 percent of hospitals received Medicaid payments less than costs, AHA found.

Hospital participation in Medicare and Medicaid is voluntary. But non-profit hospitals must treat beneficiaries of the public payers in order to qualify for federal tax exemption.

Hospitals are thought to shift this underpayment by taking on privately insured patients in a practice known as cost shifting.

Through cost shifting, hospitals charge a privately insured patient more than other patients for the same procedure or service in order to cover the financial loss hospitals incur for providing care to those without insurance or whose insurance rates cannot be negotiated by the hospital.

A recent paper published by the National Bureau of Economic Research found that cost shifting among hospitals had increased private payer rates by 1.6 percent, boosting payments to the facilities by $86,500 each.

More recently, the Colorado Department of Health Care Policy & Financing blamed hospital cost shifting for rising healthcare costs in the state, which had made Colorado one of the most expensive states for healthcare.

Evidence is still scarce but mounting, and some hospitals have defended the practice, contending that it exists “because of chronic underfunding of state and federal public health care programs – namely Medicare and Medicaid.”

But cost shifting, or whatever tactic hospitals use to overcome the Medicare and Medicaid shortfall, is likely to become harder to execute in the next year.

The data from AHA preceded COVID-19 and did not reflect the impact the pandemic has had on hospital finances, including payer mix.

Already over 40 percent of hospitals in the US have experienced increases in bad debt and uncompensated care, the percentage of uninsured or self-pay patients, and the percent of Medicaid patients seen as a result of the COVID-19 pandemic.

At the same time, about 38 percent of hospital leaders reported a lower percentage of privately insured patients who typically bring in higher revenue compared to publicly insured patients.

Just recently, AHA reported that hospital uncompensated care costs grew to $41.6 billion in 2019.