CCHE Seminar Series: The rapidly declining sustainability of Traditional Medicare in California hospitals

The rapidly declining sustainability of Traditional Medicare in California hospitals

Etienne Gaudette
Patented Medicines Pricing Review Board, University of Toronto

Friday April 22, 2022, 10am-12pm, Zoom

Abstract: Medicare Part A, the public insurance program which covers inpatient care of Medicare patients in the United States, features fee-for-service reimbursements set below provider costs for much of the country. According to a recent Medicare Payment Advisory Commission report, US hospitals had an average operating margin of -9.3% for Medicare services in 2018, compensated by positive margins from other payers. This figure conceals critical regional variations. Of particular concern are areas with higher hospital staff wages relative to the country’s average, where the labor inputs fundamental to health care are most expensive. To account for regional input price variations, Medicare has been adjusting fees using the Hospital Wage Index since 1983. However, recent analysis has found that these adjustments do not prevent lower margins for some high-cost areas. As Medicare Part A reimbursements are set to plateau in the coming years, there is a critical need to assess the sustainability of providing care to Medicare patients and determine whether revised geographic adjustments are needed. This seminar will present results of ongoing work to 1) assess trends in Medicare margins of California hospitals in contrast with margins from other groups of public and private payers, and 2) estimate the association between Hospital Wage Index and Medicare margins across the State. California is particularly relevant as a case study given its rapidly increasing wages in specific regions of the State and its heavy reliance on geographic adjustment factors–for FY2022, the 14 statistical areas with the largest proposed Hospital Wage Index values are all located in California. The analysis relies on California’s Office of Statewide Health Planning and Development hospital financial data and Centers for Medicare & Medicaid Services Hospital Wage Index data as primary sources.

Etienne Gaudette, PhD is a health economics researcher with publications in the areas of medical spending, access to care, health supply management and constraints, population health, pharmaceutical pricing policy, cost-effectiveness analysis, microsimulation methods, and traumatic brain injury. Dr. Gaudette currently holds an Assistant Professor status at the Institute of Health Policy, Management and Evaluation at the University of Toronto and is a Senior Health Economist at the Patented Medicine Prices Review Board of Canada. He previously occupied the position of Policy Director at the University of Southern California’s Roybal Center for Health Policy Simulation.