Medicaid admissions can lead to profits, thanks to Medicare

Adding one Medicaid patient day in 2017 would increase a hospital’s Medicare payments by more than $300, which, when added to Medicaid dollars, makes treating Medicaid beneficiaries profitable for hospitals.

The Medicare Payment Advisory Commission (MedPAC) study published in the December 2016 edition of Health Affairs contradicted assumptions that admitting Medicaid patients is a loser for hospitals and those which take in large numbers of beneficiaries need supplemental payments (like disproportionate share hospital [DSH] subsidies) to break even.

The study said such a conclusion ignores Medicare DSH payments. When those payments are added to what Medicaid pays for each discharge, Medicaid admissions become profitable.

“Together the marginal revenue from FFS Medicare and Medicare Advantage to hospitals for providing one additional Medicaid day is $320 per day,” wrote MedPAC senior analyst Jeffrey Stensland. “The $320 in Medicare payments would represent about 17 percent of the cost of caring for a Medicaid patient,” adding that 90 percent of the cost is already covered by Medicaid revenues.

The generosity of Medicaid payments across states can have an impact, with Medicaid days being unprofitable in less generous states where payments can be as low as 76 percent of DSH costs.

Charity care for the uninsured, however, would affect profitability, as the study found adding a single charity care day would decrease Medicare payments by $20.

“Together, the $320 increase in Medicare payments for a Medicaid day and the $20 decrease for an uninsured day illustrate how current Medicare support for poor patients is highly skewed toward assisting hospitals that have high Medicaid patient loads instead of hospitals that have high uninsured patient loads,” Stensland wrote.

Stensland concluded saying this study shouldn’t be taken as a sign those safety-net hospitals don’t face financial challenges, but rather that those hardships are not due to taking in Medicaid patients.

“A more likely source of financial strain is charity care admissions, for which a hospital may be paid nothing, or emergency department services for patients with high-deductible plans who may ultimately pay nothing. Uncompensated care is a real financial challenge,” Stensland wrote.