Medicare Trustees Report: ObamaCare will Begin Bankrupting Hospitals in Less than 7 Years

In what may be a new low in managerial competence, the ObamaCare law penalizes Medicare providers for economy-wide productivity improvements in future years. The Medicare Trustees Report calculates that if these penalties are not repealed, this requirement will begin bankrupting hospitals, skilled nursing facilities, and home health agencies by 2019:

For all Part A services and most other (non-physician) Part B services, payment updates will be reduced in all future years by the increase in economy-wide multifactor productivity. By the end of the long-range projection period, payment rates for affected providers would be about 56 percent lower than their level in the absence of these reductions. Currently, the Medicare payment rates for inpatient hospital services are about 67 percent of those paid by private health insurance. If future improvements in productivity remain similar to what providers have achieved in the recent past (about 0.4 percent annually), then Medicare payment levels for inpatient hospital services at the end of the long-range projection period would be less than 40 percent of the corresponding level paid by private health insurance.  Absent other changes, the lower Medicare payment rates would result in negative total facility margins for an estimated 15 percent of hospitals, skilled nursing facilities, and home health agencies by 2019, and this percentage would reach roughly 25 percent in 2030 and 40 percent by 2050.

The folly of setting Medicare payment rates based on a 10 year projection of something with as many measurement issues as multifactor productivity boggles the mind. Using economy-wide multifactor productivity estimates means that productivity improvements in sectors as far removed from health care as logging, energy production, or retail services could slash Medicare payments. And if health care payments fall when health care productivity remains constant or is falling due, perhaps, to unmeasured quality improvements, patients will suffer.

The exact text of the ObamaCare law is part of the ironically titled “Ensuring Medicare Sustainability” section. Page 362 explains that the productivity adjustment is “equal to the 10-year moving average of changes in annual economy-wide private nonfarm business multi-factor productivity (as projected by the Secretary for the 10-year period ending with the applicable fiscal year, year, cost reporting period or other annual period.)” Payments are to be determined by unspecified data plagued by a host of measurement issues stuffed into an undefined projection algorithm that projects 10 years into the future when the current US government cannot even produce an annual budget.

A footnote adds that in addition to the productivity adjustments, “current law requires certain other reductions in payment updates for 2010 through 2019. For inpatient hospital services, the cumulative impact of these adjustments is a further reduction of 3.6 percent in payment levels. Also, Medicare payments to providers will be affected by an expected reduction of 2 percent in 2013 through 2021 under the Budget Control Act of 2011.”

Comments (5)

Trackback URL | Comments RSS Feed

  1. Otis says:

    My prediction: Once these hospitals start going bankrupt, Congress will try to bail them out.

  2. Chuck says:

    Great insight!

  3. Sage says:

    Medicare sustainability is going be a major problem down the road until serious free-market reforms are implemented.

  4. Nancy says:

    I think a lot more members of Congress are going to be unseated.

  5. Corey says:

    These cuts to medicare payments will force some hospitals to reject medicare patients because of cost.

    Best case scenario is that hospitals able to profit from low medicare payments expand. This will create a two-tier system, but hopefully everyone does get healthcare.