A review of data in Medicare cost reports and in CMSs Medicare Provider Analysis and Review (MedPAR) file from 2016-18, the most recent years for which data is available, shows the average loss per admission for a Medicare beneficiary at a short-term, acute care hospital increased 5% from $1,119 to $1,175. Costs increased over this period by 5.4% to $14,990, while the average payment increased to only $13,815. This increase on costs and stagnation in payments came even as the average length of stay (LOS) for each admission dropped nearly 2% to under 5.2 days.
5 areas where hospitals can improve both financial performance and patient care
The inclusion of charges and subsequent calculated costs at the department level allows for a deeper analysis into what areas are having the greatest impact on a hospital’s ability to realize gains or likelihood of incurring losses on an admission-by- admission level.
This deeper dive shows five hospital cost areas are responsible for more than 63% of total costs year over year. What is noteworthy is that only one of these areas (ICU costs) falls under what would be considered “medical care costs,” while the remaining areas are more ancillary, pertaining to room, pharmacy and supply costs. Room costs alone accounted for more than 25% of total costs in 2018 while pharmacy and medical supplies accounted for another 23%.
Average costs for these five areas combined increased 4.7% over 2016-18, from $9,080 to $9,509, severely affecting overall costs and lowering possible margins because payment gains are negated by the cost increases. By focusing aggressively on containing and reducing costs in these areas, hospitals could not only improve their overall financial health but also enhance the quality of care for patients by passing the cost savings on to more direct patient care areas.