Cost Shifting is a Myth

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Everyone knows that hospitals lose money on Medicare patients. To make up for the losses hospitals shift costs to private payers, as much as 400-800% higher. Medicare revenue typically account for 60% or more of a hospitals cash flow on average.

But do hospitals really lose money on Medicare patients? Insiders tell us no. In fact, each hospital’s Medicare reimbursement rates are based, to a large degree, ¬†on a cost-plus approach. Hospitals must file with CMS and attest to their costs.

If hospitals are not required to accept Medicare patients, and if it is true that hospitals lose money on Medicare patients, why do they continue to accept them?

A hospital administrator summed it up this way: “Hospitals do not lose money on Medicare, they make a profit. Any hospital administrator whose hospital loses money on 60% of their revenue will not be employed very long by the Board of Directors.”

Editor’s Note: The American Medical Association disputes the theory that hospitals make money on Medicare patients (see http://www.aha.org/aha/content/2005/pdf/05fragilehosps.pdf). However, go to www.ahd.com and do a little research in your spare time. There is an answer out there somewhere to the question – Do Hospitals Lose Money on Medicare Patients? Some say “Yes” and some say “No”. Who is telling the truth?

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