Hospital reimbursement rate is about 134% of what Medicare pays, study suggests

Across private insurers, Medicare and Medicaid, hospitals are reimbursed about 134 percent of what Medicare pays, according to an analysis from liberal-leaning think tank the Center for American Progress.

For its study, CAP examined Healthcare Cost Report Information System data from 2016, the most recent year for which CMS has nearly complete data. CAP researchers said the data was restricted to a sample of nonfederal acute care hospitals, which is a subset of all hospitals included in the HCRIS. As CMS audits only a small part of the HCRIS reports for data related to hospital financing, CAP said many data fields in the cost reports contain "unreasonable values and other errors."

Among its findings, CAP said the hospital industry's operating margin was 6.7 percent for 2016. All together, hospitals had a total margin of 8 percent, which researchers said makes acute care hospitals more profitable than health insurers, pharmacies and pharmacy benefit managers. Medical device manufacturers and pharmaceutical companies still had higher margins than acute care hospitals.

The picture varied among individual hospitals, according to CAP. About a quarter of for-profit and nonprofit hospitals lost money in 2016. For those that were much more profitable, CAP pegged price variation as a main contributor.

"While the high expenditures in some regions of the country are at least partly explained by local input costs, utilization, or medical practice style, price variation is responsible for most of the geographic variation in expenditures among people with private insurance," CAP said.

CAP recommended lowering hospital prices to tame the overall growth of healthcare costs.

The hospital industry has spoken out against studies that name hospital prices as a key player in the overall rise of healthcare costs. In response to a RAND Corp. study finding private insurers pay hospitals 2.4 times what Medicare pays, the American Hospital Association said, "Medicare payment rates, which reimburse below the cost of care, should not be held as a standard benchmark for hospital prices."

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