hospitals that treat Medicare patients face a challenge from rising room costs

One of the intended benefits of the Affordable Care Act (ACA) was to have more beneficiaries enroll in a state-sponsored Medicaid plan or in the state and federal health insurance marketplaces, where they would gain coverage through a commercial health plan. And, indeed, more patients have commercial coverage under the ACA. However, a review of the data for 2013 (the most recent year for which data are available and the year before ACA insurance policies began) finds that Medicare is still the most commonly used insurance program for the nation's hospitals-and that room costs are among the highest costs hospitals incur in treating patients in the Medicare program.

The data show 37 percent of the total admissions in the data set analyzed were for Medicare beneficiaries. The data also show that, on average, an admission of a Medicare beneficiary involves a longer length of stay (LOS) and substantially higher charges than does an admission of a patient with some other type of insurance coverage. Compared with admissions under other types of coverage, a Medicare admission is nearly a full day longer, with charges more than 30 percent higher than the next highest coverage category.

To better understand the impact Medicare admissions can have on a hospital's financial well-being, we can use the Medicare Provider Analysis and Review (MedPAR) file administered by the Centers for Medicare & Medicaid Services (CMS). This file contains every Medicare admission processed by hospitals and breaks each admission into 30 independent department charges. By matching the admissions contained in the MedPAR file with data from hospitalsupplied Medicare cost reports, it is possible to calculate an estimated cost per admission and break it into matching department-level costs.

A review of MedPAR admissions for the most recent three-year period (CMSyears 3011-13) finds that room costs account for 37 percent of a hospital's total estimated costs. For each year reviewed, room costs (for private, semi-private, and ward rooms) exceeded $3,000 per Medicare admission-adding up to a cost of more than $36 billion per year. In short, room costs, which are invariably incurred with every admission, constitute by far the largest cost center identified in the CMS data. A comparison of the threeyear period further finds that room costs have increased 9.7 percent during that time, to $3,361.

For the same three-year period, hospital payments from CMS have increased to just over $13,000 per Medicare admission, with the room cost per admission amounting to between 37 percent and 30 percent of the total payments. These results underscore the importance for hospitals of carefully managing all aspects of room costs for Medicare beneficiaries. Medicare admissions continue to be the largest portion of a hospital's patient population, and the rising costs associated with these admissions have a clear and direct impact on hospital profitability and margins.

This research and analysis was prepared by Optum Payer Solutions Consulting using an archive of inpatient hospital data assembled for analytic and benchmarking purposes. The archive comprises data sets created by states and made available for commercial and academic use, with individual patient identities protected. To create these data sets, these states collect inpatient admission data from hospitals via state agencies, hospital trade associations, or outside vendors. The states range from small to large and span the entire length and depth of the country, providing a comprehensive social, ethnic, and geographic base from which comparisons can be made.

For more information, contact Jan Welsh at janine.welshff* optum360.com.