Strong PPS margins suggest waning profits
There was a time when hospital officials fought hard to keep their Medicare margins high. If they did well in Medicare, chances are they did well across all payers. In those days, they cost-shifted from the private sector to make up for Medicare short falls.
No more cost shifting; now the reverse is true.
Hospitals showing themselves as high performers in Medicare margins are hurting compared to those that are gaining ground from private sector payers, according to a recent report of hospital payment trends from the Washington, DC-based Prospective Payment Assessment Commission (ProPAC).
Teaching hospitals’ margins climb
"Major teaching hospitals had the highest aggregate PPS [Prospective Payment System] margin of any hospital group, 19.4% in 1995," points out Donald A. Young, MD, ProPAC’s executive director, in the report. "That margin was their highest in a decade."
That’s the good news for academic facilities. But the bad news is that overall, major teaching hospitals are showing the worst financial performance, with their average total margins at 2.8% in 1995, compared with 8.3% for rural hospitals. "Although these [teaching] hospitals have high PPS margins, their overall financial performance is worse than that of other groups," the report points out.
Private sector market pulls ahead
The PPS inpatient and total hospital margins chart compares PPS-based profitability with overall profitability for all types of hospitals. (See chart, p. 117.) It’s clear that those that focused on making private sector market inroads are coming out ahead of the game. "Only 11% of teaching hospitals, for instance, had total margins above 10%," ProPAC points out.
Here are other examples of hospital performance by type of hospital:
• Rural hospitals show an overall median margin of 4.4%. At the same time, they’ve even improved in their PPS margins, with 1995 averaging 3.9% for rural referral centers and 7.1% for sole community hospitals.
• For-profit hospitals show a median profit of 14.2% from PPS and an overall average margin of 6.9%.
Even more telling are how many hospitals have done well with both PPS and overall margins as of 1995, ProPAC’s most recent year of analysis. As the chart shows, stunning PPS-specific profits and overall profits are indicated. For example:
• More than one-third (39.1%) of all hospitals show a PPS margin over 10%, and close to one-fifth (18.7%) of all hospitals had overall margins exceeding 10%.
• More than half (60%) of all for-profit hospitals claimed PPS profits over 10%, and more than one-third (37.8%) reflected overall margins exceeding 10%.
• More than one-third (43.3%) of sole community hospitals claimed 10% or better PPS margins, and 18% showed more than 10% in profits.
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