As Mango explained, the commercial book of business, which historically has generated about 150% of margin, is shrinking. That means hospitals must raise their prices each year just to stay even. Meanwhile, the Medicaid and Medicare books of business are growing, even as reimbursements are falling.
Mango noted that almost all the growth in Medicare in recent years has been accrued to Medicare Advantage. "In our minds, it's here to stay. We think it will be a refuge for any senior over the long term."
Medicare Advantage will become more important as reduced reimbursements push doctors out of fee-for-service Medicare. In addition, Medicare FFS could also be challenged by decisions from the Independent Payment Advisory Board or IPAB. The Affordable Care Act gives IPAB the power to step in and manage Medicare expenditures when costs, such as physician reimbursements, get out of line.
Under these circumstances providers have several options. They may: