Will Medicare Cuts Reduce the Quality of Hospital Care?

The Affordable Care Act (ACA) permanently slows the growth of Medicare payment rates for inpatient hospital care, raising concerns that hospitals will raise prices for private payers in order to offset lower Medicare revenue. But if history holds true, nonprofit hospitals will reduce operating expenses instead, according to a study by the Center for Studying Health System Change (HSC).

The claim that the ACA will drive large numbers of hospitals to insolvency appears to only hold true with for-profit hospitals. For-profit hospitals, which tend to have lower operating costs, will see profits decline.

But not-for-profit hospitals will adjust their operating expenses to match lower revenues. Hospitals will offset about 90% of lost revenues by through savings on personnel and non-personnel costs. Hospitals will also delay or forgo capital improvements. According to researchers, “Newhouse (1970) describes the hospital industry as aspiring to a Cadillac level of quality. Our results suggest that hospitals, if forced to, will instead turn out Buicks.” If hospitals can maintain or improve their quality of care, the result will be improved efficiency. For more information, visit www.hschange.org/CONTENT/1385/.

Last Updated 09/23/2020

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