How Medicare reimburses LifePoint Hospitals
LifePoint Hospitals: A critical investment profile (Part 8 of 10)
Medicare earnings
According to the 2014 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplemental Medical Insurance Trust Funds, the healthcare industry earned $583 billion from Medicare in 2013.
For-profit hospital operators such as HCA Holdings (HCA), Universal Health Services (UHS), Community Health Systems (CYH), and LifePoint Hospitals (LPNT) earn 20% to 35% of their net revenues from Medicare payments.
Investors interested in exposure to these companies could consider the Health Care Select Sector SPDR Fund (XLV).
Medicare breakdown
The above graph shows the breakdown of Medicare payments received by LifePoint Hospitals. Medicare inpatient payments increased at an annual rate of 3.1%, from $503.9 million in 2011 to $535.5 million in 2013. Meanwhile, outpatient payments increased at an annual rate of 12.2%, from $260.9 million to $328.4 million in the same time period. This suggests that a greater number of people in rural communities are opting for outpatient services.
Disproportionate share program
The Medicare Disproportionate Share Hospital program, or DSH, qualifies hospitals for payments if they treat a high percentage of low-income patients. The percentage is determined by a fixed formula.
With the Affordable Care Act, or ACA, Medicare DSH payments to providers are being reduced, as it is predicted that public and private coverage will extend to 32 million uninsured Americans by 2019. The ACA has projected that Medicare DSH cuts will save $22.1 billion between fiscal 2014 and 2019.
LifePoint Hospitals will be most affected by these cuts given that 88.7% of its hospitals accepted DSH payments in 2012. Community Health Systems, for its part, accepted DSH payments at 84% of it facilities.
Medicare payment rates
Medicare payment rates to hospitals’ outpatient departments increased by 1.7% in 2014. In 2015, the reimbursement rate will increase by another 2.2%. The inpatient payment rate is expected to increase by 1.4% in 2015. The payment rates are adjusted based on factors like inflation and the type of service provided.
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