New AHA report highlights surge in hospital input costs

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The American Hospital Association today released a new report showing rising input costs for hospitals over the past year for such expenses as
workforce, drugs, supplies and equipment.

Surges in input costs, along with ongoing challenges from the COVID-19 pandemic and Medicare payment cuts, have continued to strain hospital resources, the AHA said. The AHA wants health system leaders to urge Congress to reverse Medicare cuts, including the scheduled 2% sequestration payment reduction scheduled to go into effect in July, and to provide additional COVID-19 relief.

Most of the nation's hospitals and health systems were operating on razor-thin margins prior to the pandemic. Over 33% of hospitals are now operating on negative margins, according to the AHA report.

Analysis shows that for 2022, hospitals received a 2.4% increase in the Medicare inpatient payment rate, while hospital labor rates increased 6.5%, the AHA said.

"Hospitals appreciate the support and resources that Congress has provided throughout the pandemic; however, additional support is needed now so hospitals can provide care to the patients and communities they serve," the AHA said.

WHY THIS MATTERS: REPORT FINDINGS

More than half of COVID-19 hospitalizations have occurred since July 1, 2021, during recent surges tied to the Delta and Omicron variants, according to the report. The average length of a patient stay increased 9.9% by the end of 2021 compared to pre-pandemic levels in 2019, due to the complexity of COVID-19 care.

"As a result, overall hospital expenses have experienced considerable growth," the AHA said.

Labor accounts for more than 50% of hospitals' total expenses. Hospitals are paying more for labor due to staffing shortages that require hiring more expensive contract staffing. There's been a 120% increase in job postings for contact or travel nurses from January 2019 to January 2022.

Increases in drug costs have been driven by utilization due to patient acuity and a rise in prices.

Remdesivir, one of the primary drugs used to treat COVID-19 patients in the hospital, has become the top spend drug for most hospitals since the pandemic. Priced at an average of $3,120, Remdesivir's cost was initially covered by the federal government. However, hospitals must now purchase the drug directly.

Also worrisome is the ever-looming Medicare sequester cut mandating a 2% reduction in fee-for-service payments. Congress has extended the moratorium, but the 2% cut is scheduled to begin on July 1.

In December 2021, Congress approved legislation that eliminated the 2% reduction in Medicare sequester cuts until March 31, 2022 and included a 1% reduction from April 1 to June 30. 

THE LARGER TREND

The AHA has continuously called upon Congress to release the remaining funds from the American Rescue Plan and to give other relief, without producing the desired result.

In January, as the AHA asked for $25 billion to help combat labor shortages and rising contractual costs, the Department of Health and Human Services released $2 billion in additional funding for hospitals.

Earlier this month, HHS said it would no longer be adjudicating claims submitted for COVID-19 vaccine administration, due to a lack of federal funds. The government also stopped accepting claims to the COVID-19 Uninsured Program because of financial constraints. In March, the program no longer accepted claims for the testing and treatment of COVID-19.

But the AHA said hospitals continue to bear the financial brunt of COVID-19 variants. 

"While we hope that our nation is rounding the corner in the battle against COVID-19, it is clear that the pandemic is not over. During the week of April 11, there have been an average of over 33,000 cases per day, and reports suggest that a new subvariant of the virus (Omicron BA.2) is now the dominant strain in the U.S. As a result, the challenges hospitals and health systems are currently facing are bound to last much longer," the AHA said.

ON THE RECORD

"America's hospitals and health systems, and our caregivers, have been on the front lines in fighting the pandemic for over two years now, facing numerous challenges along the way," said AHA president and CEO Rick Pollack. "While we have made great progress in the fight against the virus, this report shows that we are not out of the woods yet when it comes to addressing the need to repair and rebuild our hospitals.

"The dramatic rise in costs of labor, drugs, supplies and equipment [continues] to put enormous pressure on our ability to provide care to our patients and communities. The pandemic has clearly demonstrated that America cannot be strong without its hospitals and health systems being strong.

"We continue to urge Congress to provide additional support to address these challenges, including by reversing harmful Medicare cuts, replenishing the Provider Relief Fund, granting flexibility on accelerated and advance Medicare repayments, and extending or making permanent critical waivers that have improved patient care."           

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