If Medicare Was the Only Payor, Hospitals Would Have to Cut Costs by 14%

If all inpatient payments were covered by Medicare, a hospital would have to reduce direct costs by $1,082 per case, or 14 percent, to sustain current operating margins, according to an analysis by sg2.

Since upcoming performance-based penalties could further reduce Medicare payments and commercial payors in some markets are bringing rates closer to Medicare levels, hospitals will need to learn how to significantly reduce costs.

This will mean cutting out wasted services — such as avoidable admissions, unnecessary care, lack of care coordination and provider error — which CMS says account for 40 percent of total Medicare spending.

Read the sg2 release on Medicare payments.


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