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Report: “Medicare for All” could reduce hospital revenues by 16%

Written on Apr 9, 2019

Implementing a "Medicare for All" system that extends the current fee schedule to all patients would result in net revenue losses north of $150 billion for hospitals nationwide, according to a new JAMA report.

If Medicare for All is implemented, those at greatest risk are hospitals operating with costs significantly higher than the Medicare payment rate, according to the report. Hospital profit margins would likely decline as drastically as revenues, from a current average of 7% to a projected negative 9%, representing an annual loss of nearly $86 billion.

Similarly, hospitals would expect to fleece 1.5 million clinical and administrative jobs to reduce labor costs in the event of projected revenues shortfalls resulting from Medicare for All. The JAMA report found that even if hospitals sacrificed their profit margin as a buffer, more than 850,000 jobs would still be lost as a result of outstanding revenue shortfalls.

The findings come as Medicare for All continues to dominate conversation among health care policymakers, especially progressive leaders in the Democratic Party, including several presidential candidates who have made it a centerpiece of their respective campaign platforms.

The JAMA report found that expanding Medicare into essentially a single-payer model would adversely affect hospitals which have a disproportionate share of commercially insured patients. Several variations of Medicare for All call for the elimination of the private insurance market.

However, more than one-quarter of hospitals that report negotiating with private insurers as the greatest price pressure for the organization also indicate that costs are "7% below the national average and do not lose money treating Medicare beneficiaries," according to JAMA.

While Medicare for All would effectively increase payments rates from public insurers to 100%, JAMA calls such an approach "very expensive," adding that it would "do little to encourage hospital efficiency.”

The report estimates that annual federal Medicare spending would increase $40.7 billion while state and federal Medicare spending would total $25.6 billion. Last month, a similar study by Navigant examined the potential financial effects on hospitals due to various Medicare expansion policy proposals, including Medicare for All.

In its analysis, Navigant found a medium-sized, nonprofit, multi-hospital system with revenues of more than $1 billion and a current operating margin of 2.3% would see revenues decline by around $330 million under Medicare for All, representing a margin drop of just over 22%.The JAMA report does highlight some possible positive outcomes from implementing Medicare for All, including that hospitals could find new ways to become more efficient, such as through incurring less debt, negotiating improved rates in supply chain operations, or foregoing planned capital expenditures.

The job losses may even be offset by growth in non-health care industries, according to JAMA, meaning reduced health care spending under Medicare for All could "could stimulate a growth in employment (or wages) outside of the health care industry.

Still, hospital leaders have remained openly skeptical about the potential benefits of enacting such a program, with American Hospital Association CEO Rick Pollak rebuffing it in February as a policy that could "do more harm than good to patient care."