Zero isn’t the best number to see if you’re taking a class, but when it comes to Medicare, seeing zero in lieu of red in terms of reimbursement versus expense is welcome. Medicare is rarely where hospitals and health systems expect to make money, but is it possible to break even? Could you, unlikely though it may seem, make a margin? It is possible. Let’s look at a couple of stats:
Stat #1: In the HealthLeaders Media Industry Survey 2010, 90.4% of CFOs rated Medicare reimbursement as having primary importance to their revenue stream in the next three years. Flash forward one year, and with all the proposed changes in Medicare reimbursement, not surprisingly in the HealthLeaders Media Industry Survey 2011, 78% of CFOs reported that Medicare/Medicaid would have a negative or strongly negative impact on their organization.
Stat #2: Medicare typically only reimburses 85% to 90% of costs, and it usually takes cost shifting—getting vastly better reimbursement from commercial payers—for a hospital to stay in the black. The equation looks like this: Positive margins from private payer business minus (usually) negative margins of Medicare and Medicaid and the balance (if any) is profit. Finding the breakeven point in that formula can have a significant financial impact for any hospital or health system. Once you’re no longer using your private payer profits to climb out of a Medicare hole, you’ll start to see a difference in your bottom line.
How can you make this happen? Bob Gift, director at Chadds Ford, PA-based IMA Consulting, offers a couple of suggestions about how healthcare leaders can position themselves better to make breakeven happen: