Medicare Inpatient Profitability in US Hospitals

MEDICARE INPATIENT PROFITABILITY IN US HOSPITALS THERE IS A WIDE VARIATION IN AVERAGE MEDICARE INPATIENT PROFIT PER CASE ACROSS US HOSPITALS'... PERCENT OF US HOSPITALS; N=65 HOSPITALS WITH 200-400 BEDS; 2011; NOT ADJUSTED FOR DRG MIX 25- $-2800 $1100 ВОтTом QUARTILE HOSPITALS TOP QUARTILE HOSPITALS 20- 15- OF HOSPITALS 10- 5- -3 to -2 -2 to -1 -1 to 0 O to 1 >1 AVERAGE PROFIT PER CASE ($ THOUSANDS) ...AND THAT VARIATION IS PRIMARILY DRIVEN BY COST PER CASE FOR EXAMPLE, COST PER CASE FOR MAJOR JOINT REPLACEMENT IS 2.5 TIMES HIGHER IN DRIVERS OF MEDICARE PROFIT PER CASE DIFFERENCE BETWEEN BOTTOM VS. TOP QUARTILE HOSPITALS MEDICARE COST PER CASE BY COST CENTER; N = 65 HOSPITALS WITH 200-400 BEDS; 2011 TOP AND BOTTOM QUARTILE HOSPITALS; 2011 $ . $10,700 4,000 OTHER ROOM AND BOARD $4,200 SUPPLY DRG MIX LENGTH OF STAY COST PER CASE? BOTTOM QUARTILE HOSPITALS TOP QUARTILE HOSPITALS OTHER FOOTNOTES: 1.Profit = net revenue minus total cost (fixed and variable costs). This analysis differs from MedPac's analysis in that net revenue does not include DSH, GME or IME, and total cost is not limited to Medicare-allowable costs. High cost Medicare beneficiaries are excluded by removing encounters with: a) LOS greater or lesser than 2x arithmetic mean of LOS; or b) variable cost per case greater or lesser than 2x standard deviation of average variable cost per case per MS-DRG 2. Same DRG mix and wage-adjusted. Wage adjusted costs are intended to back out the cost of wages and estimate cost per case after adjusting for CMS's labor rate; e.g. average cost per case would be scaled up by 5% in a case where a hospital's CMS base rate (as used for revenue calculation) is 5% below average. DRG mix adjustment applies an average "DRG market basket" to all hospitals, similar to consumer price index methodology 3. DRG mix driver is the $ in profit per case difference explained by comparing DRG-adjusted profit per case with non-adjusted profit per case. 4. LOS driver is the $ in profit per case difference explained by comparing average lengths of stay (0.02 days) times the "hotel cost" per day 5. DRG 470: major joint replacement or reattachment of lower extremity w/o MCČ SOURCES: • Objective Health de-identified client data • Premier discharge database 2011 • Objective Health analysis OBJECTIVE HEALTH" A MCKINSEY• SOLUTION FOR HEALTHCARE PROVIDERS Copyright 2012, Objective Health, a Mckinsey Solution for Healthcare Providers.