American Hospital Association urges Congress to stop July 1 Medicare sequester cuts

Photo: xavierarnau/Getty Images

The American Hospital Association is urging Congress to prevent the Medicare sequester cuts to hospitals that are scheduled to go into effect on July 1.

Hospitals and health systems need financial relief from the pending reduction in Medicare payments to maintain access to care for patients while they continue to face financial and workforce pressures brought on by the COVID-19 pandemic, said AHA executive vice president Stacey Hughes in a June 14 letter to Congressional leaders.

Ninety-four percent of hospitals have 50% or more of their inpatient days paid by Medicare or Medicaid, and more than three quarters of hospitals have 67% or more Medicare or Medicaid inpatient days, the AHA said. Medicare and Medicaid reimburse hospitals less than the cost of providing care and are nonnegotiable, fixed reimbursement rates, the AHA said.

The AHA said it was writing on behalf of its nearly 5,000 member hospitals, health systems and other healthcare organizations, including more than 270,000 affiliated physicians, two million nurses and other caregivers, and 43,000 healthcare leaders.

WHY THIS MATTERS

The cuts were triggered by federal budget sequestration, but COVID-19 stalled the 2% cut to Medicare payments. In 2020, Congress paused the cuts until April 1, 2021. The House then passed a bill to delay the cuts until the end of 2021.
 
A 1% Medicare sequester cut took effect this April 1, and that cut will increase to 2% on July 1. Without action from Congress, the AHA estimates hospitals will lose at least $3 billion by the end of the year, Hughes said.

THE LARGER TREND

Since the beginning of the pandemic, there have been over 85 million COVID-19 cases and over one million deaths in the U.S., as well as nearly five million total reported COVID-19 hospital admissions, placing hospitals under tremendous financial pressure, the AHA said. The pandemic has resulted in higher expenses for labor, drugs and supplies.

In April, the AHA released a report highlighting the increase in expenses as a result of a variety of workforce, supply chain and economic factors. Even before the pandemic, labor costs – including recruitment, retention, benefits, incentives and training – accounted for more than 50% of hospitals' total expenses, the AHA said. By the end of 2021, hospital labor expenses per patient were 19.1% higher than pre-pandemic levels.

Other headwinds include inflation and price increases, while hospitals exist on fixed reimbursement rates. All these factors have led to a historically poor first quarter, financially, for hospitals and health systems this year. As recently as April, operating margins were down nearly 40% from the prior month.
 
  
 
 

Twitter: @SusanJMorse
Email the writer: SMorse@himss.org