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Over the past decade the rates paid by the government (Medicaid & Medicare) and private health plans (HMOs) failed to cover the costs of providing care in hospitals. In essence, these hospitals simply couldn't squeeze under a reimbursement bar that was set so low, “reimbursement limbo”. It is extremely difficult for these hospitals to break even with their costs. There has been little, if any increase in reimbursement for physicians under Medicaid for nearly 10 years. During that same time, office overhead expenses (employee compensation, medical malpractice insurance, regulatory compliance, etc.) have increased dramatically. In 1993, Medicare reimbursed hospitals for only 89 percent of the cost of services provided to beneficiaries. History demonstrates that squeezing hospitals further will induce them to charge more to private insurers. That may raise the cost of private coverage to employers and employees, which in turn could increase the number of uninsured and underinsured Americans. Financially speaking, with many hospitals on the ropes, further cuts in Medicare payments could accelerate their demise or erode the quality of care they provide. Medicare already pays hospitals less than the costs they incur for treating patients. A decline in the number of hospitals, which will be likely even without further Medicare cuts. This will reduce patient access to health care. Although most analysts, seeing excess capacity throughout the system, agree that too many hospitals now exist, winnowing their number through reductions in Medicare reimbursement rates will hit some locations and types of individuals much harder than others.
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