American Hospital Association wants Congress to intervene in Medicare and Medicaid payments

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Following the release earlier this month of acute care hospital inpatient payment rates the American Hospital Association called "woefully inadequate," the AHA has released a report that it said shows a continuation of financial pressures that began at the start of the COVID-19 pandemic.

Expenses across the board saw double-digit increases in 2022 compared to pre-pandemic levels, including for workforce, drugs, medical supplies and equipment, as well as other operational services such as IT, sanitation, facilities management, and food and nutrition services, the report said. 

There has been a 17.5% increase in overall hospital expenses between 2019 and 2022, according to the AHA, citing data from Syntellis Performance Solutions, a healthcare data and consulting firm.

"Specifically, hospital expense increases between 2019 and 2022 are more than double the increases in Medicare reimbursement for inpatient care during that same time," the AHA said.

These factors led to the most financially challenging year for hospitals and health systems since the beginning of the COVID-19 pandemic, leaving over half of hospitals operating at a financial loss at the end of 2022, the AHA said. Negative operating margins continued in January and February 2023, putting access to services at risk.

The first quarter of 2023 saw the highest number of bond defaults among hospitals in over a decade, according to the AHA.

"This also is one of the primary reasons that some hospitals, especially rural hospitals, have been forced to close their doors. Between 2010 and 2022, 143 rural hospitals closed – 19 of which occurred in 2020 alone," the AHA said. "Finally, despite these cost increases, hospital prices have grown modestly. In fact, in 2022, growth in general inflation (8%) was more than double the growth in hospital prices (2.9%)."

WHY THIS MATTERS

"Without additional congressional action and support from the administration, patients' access to care is at risk," the AHA said. "Further exacerbating the situation is the fact that the staggering expense increases have been met with woefully inadequate increases in government reimbursement."

The AHA wants Congress to urge the Centers for Medicare and Medicaid Services to use its "special exceptions and adjustments" authority to make a retrospective adjustment to account for the difference between the market basket update that was implemented for fiscal year 2022 and what the market basket is currently projected to be for 2022.

It also wants Congress to create a special statutory designation and provide additional support for metropolitan anchor hospitals that serve historically marginalized communities. 

In addition, the AHA wants Congress to reject cuts to Medicare and Medicaid payments to hospitals and health systems and establish a temporary per diem payment to address a backlog in hospital patient discharges due to workforce shortages.

Earlier this month, CMS released the FY 2024 Inpatient Prospective Payment System/Long-Term Care Hospital Prospective Payment System Proposed Rule, with a 60-day comment period.

Under the proposed rule, acute care hospitals that successfully participate in the Hospital Inpatient Quality Reporting program and are meaningful electronic health record users get a proposed payment rate increase of 2.8% in 2024. This reflects a projected hospital market basket update of 3%, reduced by a projected 0.2 percentage point productivity adjustment. 

The AHA called the 2.8% inpatient increase "woefully inadequate," and said this and a proposed long-term care hospital decrease were "unsustainable."

THE LARGER TREND

The report found:

• Labor costs, which on average account for about half of hospitals' total budget, increased 20.8% between 2019 and 2022. This is in large part due to a greater reliance on contract staffing agencies to fill workforce gaps and to meet patient demand. The outcome of this has been a 258% increase in total contract labor expenses for hospitals in 2022 compared to 2019.
• For the first time in history, the median price of a new drug exceeded $200,000 – more than triple the median annual household income in the United States. At the same time, price increases for existing drugs continue to outpace inflation. The increases helped drive a 19.7% increase in drug expenses per patient between 2019 and 2022
• Hospital supply expenses per patient increased 18.5% between 2019 and 2022, outpacing increases in inflation by nearly 30%. Specifically, hospital expenses for emergency services supplies – which include ventilators, respirators and other critical equipment – experienced an increase of nearly 33% during the same time period.
• Purchased service expenses, which are expenses hospitals incur to create operational efficiencies in categories such as IT, environmental services and facilities, and food and nutrition services increased 18% between 2019 and 2022.
• The burden associated with insurer-required administrative tasks also contributes to rising expenses and negatively affects patient care. Nearly three-fourths of nurses reported increases in insurer-required administrative tasks for medical services over the last five years. Nearly nine in 10 nurses reported insurer administrative burden had negatively impacted patient clinical outcomes.

ON THE RECORD

"Rising costs for drugs, supplies, and labor coupled with sicker patients, longer hospital stays and government reimbursement rates that do not come close to covering the costs of caring for patients have created a dire situation for hospitals and health systems," said AHA president and CEO Rick Pollack. "This is not just a financial problem, it is an access problem. When healthcare providers cannot afford the tools and teams they need to care for patients, they will be forced to make hard choices and the people who will be impacted the most are patients. We can't let that happen. Congress and others must act to preserve the care our nation needs and depends on."

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