The proposed increase in Medicare inpatient rates for FY 2024 is inadequate, ASH has written in a letter to the Centers for Medicare & Medicaid Services.
In its letter, ASH wrote that
In the proposed rule CMS calls for increasing Medicare inpatient rates a net 2.8 percent. In ASH’s view this is too little because it fails to reflect actual increases in health care costs and continues a troubling trend in recent years of inadequate Medicare rate increases that are having a demonstrable and negative effect on the financial health of community safety-net hospitals and others.
The following is ASH’s entire response to Medicare’s proposed FY 2024 inpatient rate increase.
In the proposed rule CMS calls for increasing Medicare inpatient rates a net 2.8 percent. In ASH’s view this is too little because it fails to reflect actual increases in health care costs and continues a troubling trend in recent years of inadequate Medicare rate increases that are having a demonstrable and negative effect on the financial health of community safety-net hospitals and others.
According to the report “The Financial Stability of America’s Hospitals and Health Systems Is at Risk as the Costs of Caring Continue to Rise,” published in April by the American Hospital Association, hospital labor costs rose 20.8 percent between 2019 and 2022; hospital supplies expenses rose 18.5 percent; prescription drug costs rose 19.7 percent; and hospitals’ purchase of services costs rose 18 percent. Overall, the report concludes, hospital expenses rose 17.5 percent during the period between 2019 and 2022 while Medicare payments rose less than half as much during that same period: just 7.5 percent. A presentation delivered at a recent gathering of the American Health Law Association by the firm Health Policy Alternatives and co-written by a past 26-year veteran of CMS reinforces this conclusion, showing that CMS’s 2.4 percent market basket increase for Medicare inpatient rates in FY 2021 fell well short of the inflation rate of three percent that year; that its 2.7 percent increase for FY 2022 was less than half of the 5.7 percent inflation rate that year; and that its FY 2023 increase of 4.1 percent was less than the 4.3 percent inflation rate. MedPAC agrees, writing in its March 2023 report to Congress that hospital costs have “exceeded the forecasts CMS used to set Medicare payment rates.”
Even these figures do not tell the entire story. In 2019, for example, according to the 2022 American Hospital Association report “Massive Growth in Expenses and Rising Inflation Fuel Continued Financial Challenges for America’s Hospitals and Health Systems,” prior to the pandemic, 3.99 percent of the hours worked by nurses in hospitals were worked by contract or traveling nurses, accounting for a median of 4.7 percent of hospitals’ nurse labor expenses. By January of 2022, however, contract and travel nurses accounted for 23.4 percent of all nursing hours worked in hospitals, which translated into a median of 38.6 percent of hospitals’ nursing labor costs. While this crisis has abated to a degree, the situation has by no means returned to its pre-pandemic status; contract nurses continue to account for an outsized portion of hospitals’ labor costs. This is important for two reasons: first, because of the increased expense; and second, because the employment cost index used by CMS to calculate the market basket update includes only hospital-employed staff and not the contract staffing that hospitals have been forced to rely on more than ever in recent years. Using such expensive staffing, moreover, is not a choice: it is a necessity, and without it, many hospitals would not be able to continue serving their communities as they always have because they would not have the staff to do so.
ASH believes the proposed market basket increase for FY 2024, like the increases in recent years, is inadequate, and hospitals have paid a severe price for these past payment shortfalls. According to the same AHA report,
Because of this, margins have remained consistently negative, according to Kaufman Hall’s Operating Margin Index throughout 2022… In fact, over half of hospitals ended 2022 operating at a financial loss – an unsustainable situation for any organization in any sector, let alone hospitals. So far, that trend has continued into 2023 with negative median operating margins in January and February. According to a recent analysis, the first quarter of 2023 saw the highest number of bond defaults among hospitals in over a decade. 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. 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%).
In other words, Medicare’s hospital inpatient payments are falling further and further behind the actual increase in health care costs every year.
ASH believes the proposed FY 2024 Medicare inpatient rate increase will bring more of the same: it is not enough – not enough to cover the continuing rise of health care costs, not enough to keep pace with inflation, not enough to protect the financial health of hospitals that serve large numbers of Medicare (and other) patients, and, most important from ASH’s perspective, not enough to meet the needs of community safety-net hospitals that serve especially high proportions of low-income, low-income Medicare, Medicaid, and uninsured patients. The financial health of so many of these hospitals is in jeopardy today – and with it, so is access to care in the largely low-income, highly diverse communities they serve across the country. For hospitals that serve large numbers of privately insured patients, this can be little more than an inconvenience; they can and do engage in cost-shifting, using revenue from their privately insured patients to compensate for their modest Medicare shortfalls. Community safety-net hospitals, highly dependent on their Medicare and Medicaid patients, know no such luxury: they have relatively few privately insured patients and must absorb every shortfall in Medicare payments in other ways – ways that detract from their ability to maintain their facilities, from the quality of the care they provide, from the breadth of services they can offer their often underserved communities, and from access to care for those underserved communities.
For these reasons, ASH urges CMS to use its special exceptions and adjustments authority to implement a retrospective adjustment in the FY 2024 final rule to account for the difference between the projected FY 2022 market basket and the actual market basket for that year – a difference of 3.0 percentage points. Such a payment update would be more accurate and fairer to hospitals and ensure their continued ability to provide quality care to their patients.
ASH also recognizes that CMS has an established methodology for calculating rate increases and relies on a specific source of data for those calculations. In our view, that data source is failing CMS and failing hospitals – especially community safety-net hospitals – for which fair Medicare rate increases are absolutely essential. CMS has the authority to change its methodology, and we encourage you to do so, to find a better data source because what the current source is producing today is not accurate and now risks creating victims of a methodology that at one time may have worked but clearly no longer does.
Read ASH’s entire letter here.
