The U.S. Medicare program has implemented policies to control health care expenditures. Hospitals that are reimbursed less by Medicare may make changes that reduce costs and cause patient care quality to suffer.
These researchers looked at the average profitability of an admission to a service line relative to its average cost. With the variations in service line profitability, a hospital has incentives to invest in profitable lines over unprofitable ones. They also can subsidize unprofitable ones that have high quality.
Investigators used patient-level data from Medicare Provider and Analysis Review File that includes procedure codes, diagnoses, demographic information, deaths, submitted and allowed charges, admission source, and discharge status. They used hospital financial data from the Centers for Medicare & Medicaid Services.
For the period studied (1999–2005), there were consistent declines in Medicare markups across all service lines. Researchers simulated the effect of alternate revenue-neutral reimbursement rates of 30-day mortality of patients discharged from 21 hospital service lines.
They found a “statistically significant” inverse relationship between profitability and mortality. A 19 percent reduction in profit relative to cost led to a .01 to .02 percentage-point increase in mortality rates. Cuts in profit to unprofitable lines had even stronger ties to mortality, suggesting, “as hospitals’ margins have shrunk, their ability to subsidize the quality of unprofitable service lines also declined.”