New Navigant analysis paints three “what-if” scenarios in the face of Medicare expansion

March 29, 2019

In a new paper by Navigant, the organization considers three different hypothetical financial outcomes that hospitals would face if Medication expansion were to happen. The researchers point out that hospitals already receive a lot less reimbursement from Medicare than they do from private payors and that an expansion would stress hospital revenues even further, particularly in a time when increasing numbers of aging baby boomers are enrolling in the government program. In 2016, hospitals lost almost $50 billion treating Medicare patients because of the disparity between the delivered cost of care and Medicare’s current payment rates.

In their analysis, the authors created a hypothetical medium-sized regional, non-profit multi-hospital system called “Excelsior Health System” which has 1,000 beds across five hospitals, annual combined patient revenues of about $1.2 billion, and a current operating margin of 2.3 percent. Its commercial insurance contracts pay about 200 percent of Medicare rates, and represent approximately 25 of patient volume by charges.

Here is a snapshot of the three hypothetical policy scenarios (minus Medicare Advantage plans) Excelsior could face during a Medicare expansion:

·        Voluntary Medicare buy in after age 50: In this scenario, the researchers suggest the financial impact to Excelsior would be minimal. Self-pay patient write-offs would be reduced but offset by fewer payments for the people who would be shifting off of the exchange/commercial plans to the Medicare rate. These shifts could, hypothetically, result in a $9.6 million reduction in revenues, leaving the system with a 2 percent positive operating margin. However, what if half of the employer-insured 50+ population shifts to the new plan? Then, suggests the analysis, Excelsior’s revenues would drop by $97 million and reduce the operating margin from +2.3% to -5.1%.

·         Medicare as a public option: In the public option scenario the suggested negative margin impacts are worse. Assuming Medicare rates remain at current levels (i.e., 100 percent Medicare rate), hospital revenues could, hypothetically, drop approximately $153 million and margins would drop -6.3%. But if Medicare rates increase 10 percent hospital revenues would then drop to $97 million, with a new margin of -5.7%.

·         Medicare as a single-payer (excluding Medicaid): This last hypothetical scenario is the most discouraging, as expected, and “eviscerates Excelsior’s operating margins, reducing revenues by approximately $330 million and leaving a new margin of -22,” the analysts wrote. However, if Medicare were to raise payment to 120 percent of the current Medicare rates (something the authors said could happen for political reasons), “Excelsior loses ‘only’ about $158 million in revenue, resulting in a new margin of -14 percent.”

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