NC hospitals say they lose billions on Medicare. New report tells very different story.
In 2020, the North Carolina Healthcare Association published an infographic that claimed its hospitals lost $3.1 billion by providing care to Medicare patients.
But a report commissioned by State Treasurer Dale Folwell argues that most North Carolina hospitals did not lose money on Medicare. In fact, many of them profited, the report says.
Up to two-thirds of the state’s hospitals profited off of Medicare patients, making a total of $87 million in 2020, according to the report.
Researchers from the North Carolina State Health Plan and Rice University’s Baker Institute analyzed hospital data for the report, which was published last week.
The North Carolina Healthcare Association rejected the conclusions of the report, a spokesperson for the organization calling it “misleading and untrue.”
“This report, like others the Treasurer has commissioned, fails to account for the incredible complexity of our healthcare system, including health insurance companies’ role in rising costs,” the association said in a statement.
Folwell said the alleged losses are used by hospitals to justify raising prices for privately insured patients.
“The hospital cartel is overcharging you because they can, not because they need to,” Folwell said. “Hospital executives can’t keep hiding behind Medicare.”
A very different financial picture
Hospitals have long argued that they lose money on Medicare and Medicaid patients.
The federal health insurance plan for older adults does not negotiate prices with health providers like most private insurers — instead, it has fixed, predetermined prices for each procedure. The N.C. Healthcare Association argues that those prices are lower than what it costs to care for Medicare patients, leaving them to foot the bill at the end of each year.
“A hospital cannot continue to lose money year after year and remain open,” the association said earlier this year.
In IRS tax filings and community benefit reports, hospitals often report millions in losses from Medicaid and Medicare patients.
However, health policy experts say those documents are not reliable because of their lack of standardization, transparency and oversight.
Glenn Melnick, the Blue Cross of California chair in Healthcare Finance at the University of Southern California, reviewed the report and said the lack of standardization allows hospitals to make the numbers benefit them.
“It’s like if I ask my teenage daughter how much she spent last night and she decides it was still daylight when she went to dinner, so she’s not going to include that,” he said.
Community benefit reports are especially unreliable, said Matthew Fiedler, who studies healthcare economics at the Brookings Institution, a nonprofit research organization.
“Those are basically public relations documents that aren’t produced to any particular methodological standard,” he said.
Medicare Cost Reports, the metric Folwell’s analysis used to determine that hospitals profited from the government insurance program, is the gold standard for calculating losses or profits from Medicare and give the most accurate picture of the government program’s financial impact on hospitals, Fielder said.
The reports have standardized methodologies and are regularly vetted by the Centers for Medicare & Medicaid Services.
Folwell’s report found wide disparities between what hospitals reported on their Medicare Cost Reports and what they reported to the IRS and in their community benefit reports. Atrium Health, for example, reported more than half a billion dollars in losses in 2019, while its Medicare Cost Report showed they made millions of dollars in profits.
In an interview with the N&O, Jeff Weegar, chief financial officer for the North Carolina Healthcare Association, argued that the report only considered hospital Medicare payments, while it excluded care provided at other locations, like doctor’s offices.
However, Christopher Whaley, a health economist at nonprofit think tank RAND Corp., said those services are typically profitable for hospitals.
“I don’t think that’s actually much of a limitation,” he said.
The hospitals’ average profit margin on Medicare was one of the highest in the country in 2020, according to data from the National Academy for State Health Policy.
“Despite hospitals’ claims of losing billions of dollars on Medicare patients, their data shows a vastly different picture,” the report read.
Rising healthcare costs
It’s in the hospitals’ best interests to make it seem like they’re losing money.
That discourages the state government from capping health care prices, which hospitals often argue they need to raise to keep their institution afloat, said Nancy Kane, who studies hospital finances at the Harvard Chan School of Public Health.
This has become an increasingly common strategy in the last several years, Whaley said.
“In an environment where there’s no transparency around prices or margins or revenues, then I think that’s an easy argument to make,” he said. “Once we start having some transparency, it shows that the argument that hospitals are losing lots of money on Medicare doesn’t actually stand up that well.”
Folwell’s report found that health care prices in the state have been rising over the last seven years.
In 2020, North Carolinians paid 280% of Medicare rates, which are predetermined, fixed amounts. The average cost of a knee replacement rose about $1,000 a year, making it $7,291 more expensive in 2016 than in 2009, according to the report.
Melnick said the public narrative that hospitals are losing money is economically beneficial because it allows them to justify raising health care prices. But he said he doubts it is really relevant to rising health care costs.
“If Medicare were to go away tomorrow, they would still charge Blue Cross high prices,” he said. “They charge Blue Cross higher prices because they can.”
Teddy Rosenbluth covers science and health care for The News & Observer in a position funded by Duke Health and the Burroughs Wellcome Fund. The N&O maintains full editorial control of the work.
This story was originally published November 4, 2022 at 5:30 AM with the headline "NC hospitals say they lose billions on Medicare. New report tells very different story.."
