We have often discussed the power of the board asking questions. With the current focus on reducing the federal debt, a critical question for boards to ask is: What is our Medicare Margin? In other words: do we make money; lose money; or break even treating Medicare patients? Currently, the vast majority of hospitals lose money on Medicare, with a negative margin of about 13% (i.e., for every dollar they spend treating Medicare patients, they get reimbursed 87 cents). With the Baby Boom generation about to swell the Medicare ranks it will be impossible to reduce the federal debt without significant cuts to the Medicare program. In fact, several financial experts go so far as to say that the federal debt IS Medicare. As the Medicare population grows and as hospital’s ability to cost-shift decreases due to increasing numbers of uninsured and a variety of other reasons, it will be impossible for hospitals to generate positive margins unless they can at least break even on Medicare. It may well be true in the near future that if you can’t make money on Medicare, you can’t make money. To be able to survive in that future, the board must start the difficult journey now by taking honest stock of the challenge by asking: what is our Medicare margin?
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