According to MEDPAC (The Medicare Payment Advisory Commission, an independent congressional agency), hospitals served their Medicare patients at a 5.8% loss in 2011, down from a 4.5% loss in 2010. This was mainly because of the reduction in 2011 payment rates for inpatients.
MEDPAC also postulates that “efficient” providers, defined by a set of hospitals with good financial outcomes along with good cost, mortality and readmission benchmarks, generated a 2% profit on Medicare patients.
Overall, the commission recommends only a 1% increase in the 2014 Medicare rates for hospitals instead of a higher rate because it wants to continue pressure on hospitals to keep their costs down, and it determined that a lower payment rate would discourage more outpatient use of hospital facilities instead of less expensive alternatives such as physicians’ offices.
In evaluating payment rates for any provider type, issues other financial are considered. Patient access to service, hospitals’ access to capital , and quality of care are also factored into annual rate-setting.
While Medicare spending varies by type of provider, in 2010 (per the American Hospital Association), 39.1% of hospitals’ revenue was paid by Medicare, leaving the remaining payor mix to make up the shortfall.