Medicare in 2030 Irretrievably Broken
Authors: Pettingill Bernard F. , Tewes Federico R. 
Published: July 2022

The Medicare Program is the second-largest insurance program in the United States, with approximately 64 million beneficiaries and total expenditures of over $839 billion in 2021 [1]. There are two separate trust funds in the Medicare Program, namely the Hospital Insurance Trust Fund (HI Trust Fund) and the Supplementary Medical Insurance Trust Fund (SMI Trust Fund); both trust funds are held by the U.S. Treasury [2]. The first trust fund covers hospital in-patient expenses; and the second trust fund covers medically necessary services by medical doctors and doctors of osteopathy, preventive services, brand-name prescription drugs, and generic drug coverage [3,4]. Prior to the COVID-19 pandemic, the latest financial calculations projected that the HI Trust Fund would be insolvent by the year 2026. It is a fact that the Medicare HI Trust Fund has never been insolvent because there are no provisions in the Social Security Act that govern what would happen if insolvency were to occur. Ten of the last twelve years have witnessed expenditure outflows outpacing the HI Trust inflows, resulting in total Medicare spending obligations outpacing the increasing demands on the Federal budget as the number of beneficiaries and the per capita healthcare costs increase each year [5]. Uncompensated care refers to uninsured patients who receive care upon hospital emergency room admissions but not ever paying the hospital bill after discharge or death. Uncompensated care is the kryptonite of hospital financing because it is unpredictable and can easily destabilize the monies that hospitals depend on to cover overhead expenses. Nationwide, hospitals protect themselves against the uncertainty of uncompensated care by drastically overcharging prices to different patients receiving the same or similar medical procedures at the very same hospital locations. For all intents and purposes, the creation of Obamacare failed to address this kryptonite. However, it is a fact that the legal system places limitations upon what the federal government can do to deal with this Achilles’ heel of the American healthcare system. State governments truly hold the power to effect change towards the future of healthcare in 2030, both private healthcare and government-sponsored healthcare. Since 1970, one state has proactively protected its statewide healthcare system against the dangers of uncompensated care: Maryland. It is the only state in the entire nation to receive a federal waiver from the U.S. Centers for Medicare & Medicaid Services (CMS) because their specific design for accounting for a plethora of poor patients. This effort started with a group of hospital administrators meeting for coffee on a consistent basis to brainstorm the solution from their collective hospitals. Driven by the pride to help their communities, their involvement with the Maryland government led to the creation of the Maryland Health Services Cost Review Commission (Maryland HSCRC). This impartial government institution is backed by Maryland law that gives it the necessary legal powers to set stated singular hospital prices for all services statewide; these prices include the adjustments for uncompensated medical care that is distributed among all stakeholders equally. In fact, the Maryland HSCRC wrote the law that requires all stakeholders to comply with detailed auditing and data submission requirements for the purpose of providing the federal government with complete transparency regarding healthcare information without violating HIIPA federal patient privacy regulations. With this powerful information, the agency restricts hospital costs without limiting hospital profits, accurately measuring patient volume, and predicting the financial condition of all inpatient and outpatient services in Maryland. Because the Maryland HSCRC is both funded by resident’s money and accountable to the public, the hospital savings are as follows: Maryland markups for hospital services increased from 18 percent in 1980 to only 22 percent in 2008. During the same period, the average nationwide markup for hospital services skyrocketed from less than 20 percent in 1980 to over 187 percent by 2008. It is because of these significant savings to the Medicare Program that the Maryland HSCRC continues to receive a CMS waiver every year. In terms of prices, Maryland hospitals are prohibited from giving volume discounts and shifting costs to 4 other payers. The agency enforces a simple and clear mandate: same prices for the same medical services at the same hospitals, no exceptions! Before leaving office, President Trump instructed the CMS to enforce a price transparency rule though separate machinereadable prices as a protection against the kryptonite of uncompensated medical care. After the authors studied the CMS proposal, it became clear that single-handedly imposing penalties for noncompliance is only one factor in this multidimensional problem. Unlike the extremely efficient Maryland system, the CMS has threatened all hospitals with what will be shown below, to be ineffective measures that yield worthless results. The “Price Transparency Final Rule” penalizes hospitals with fewer than 30 beds at $300 daily for each licensed bed at small hospitals, and large hospitals (more than 30 beds) at $10 daily per licensed bed (cannot exceed the daily penalty of $5,500). Our financial analysis in a prior article on this point, focuses on Free Cash Flow because it represented the cash that a hospital can generate after disbursing the money required to maintain and pursue opportunities that enhance shareholder value. We argued that the proposed CMS civil monetary penalties imposed on hospitals was doomed from the start for failure. Our financial analysis focuses on business valuation, and specifically an accounting term called Free Cash Flows (FCF), which represents the cash that a company can generate after laying out the money required to maintain or expand its asset base; FCF is important because it allows a company to 5 pursue opportunities that enhance shareholder value [6]. At Pettingill Analytics, we looked at three publicly traded hospitals in the United States reported the following (Figure 1) [7].