Medicare inpatient payment hike offers a dose of help to NFP hospitals
As high spending continues to hurt nonprofit hospital operating margins, the sector received a dose of good news this week as the federal government increased Medicare’s payment rate for hospital care.
Hospitals can expect more than $2.6 billion in additional payments under the Centers for Medicare and Medicaid Services’ prospective inpatient payment system for fiscal year 2023 and the payment system’s final rule forecast of long-term care hospitals published on Monday. Federal law requires annual updates.
Hospitals will typically see a 4.3% increase. “Increasing operating and capital IPPS payment rates, partially offset by decreasing outlier payments for extremely expensive cases, will generally increase hospital payments in fiscal year 2023 by $2.6 billion” , said CMS. This is the largest increase in the past two decades and is due in part to higher projected growth in wage prices for hospital workers.
Some hospitals will take a hit in other areas as Medicare’s CMS plans spread hospital payments disproportionately and Medicare unpaid care payments will fall by $300 million, while payments for inpatient cases involving new medical technologies will decrease by $750 million.
The sector welcomed the increase but warned it was not enough.
“This update still falls short of what hospitals and health systems need to continue to overcome the many challenges that threaten their ability to care for patients and provide essential services to their communities,” Stacey said. Hughes, executive vice president of the American Hospital Association. in a report. “This includes the extraordinary inflationary outlays in the cost of care that hospitals are forced to absorb, particularly to support their workforce while experiencing severe staff shortages.”
In June, hospitals and health systems posted a sixth straight month of negative margins as higher patient volumes and revenue failed to offset higher spending, according to Kaufman Hall’s National Hospital Flash Report. . This reverses the trend of the previous six months of positive margins for the last six months of 2021.
“Margins are rising, but there’s a long way to go,” the report said. “As of mid-2022, hospital margins are still in the red.”
June margins improved 30.8% from May as revenue increased and expenses declined month-over-month, but expenses remained elevated from pre-pandemic levels and margins were therefore stuck in negative territory with June numbers down 49.3% from June 2021.
Gross operating revenue rose 1.2% in June from the previous month and has risen 6.2% so far this year. Total spending was down 1.3% from May as expensive contract labor fell due to reduced demand, but inflationary pressures are still higher as the numbers rose 7.5%. % compared to June 2021.
Inflationary spending and labor shortages driving up wages have helped push total costs up 9.5% so far this year, according to Kaufman Hall.
“To say that 2022 has challenged healthcare providers is an understatement,” said Erik Swanson, senior vice president of data and analytics at the financial advisory firm. “Hospitals and healthcare systems are unlikely to be able to repair the damage caused by the waves of COVID earlier this year, especially with material and labor costs at record highs this summer. .”
The image remains blurry. “Although hospitals are seeing improved volumes and reduced expenses month over month, they will likely find themselves with historically low margins for the remainder of the year,” the report warns.
The future course of COVID-19 infections by variants and the level of future hospitalizations remain uncertain, as does the future course of inflation as part of the Federal Reserve’s efforts to curb it with interest rate hikes. ‘interest.
Kaufman Hall uses Syntellis data from more than 900 hospitals, the majority of which are not-for-profit providers.
Fitch Ratings warned last month that the sector will need to raise rates, cut costs and implement “transformational” change to combat inflationary pressures and delay the sector’s COVID-19 pandemic recovery.
“Improving operating margins from reduced levels will require hospitals to make transformational changes to the business model” in the long term, while in the short to medium term they will manage “cost pressures through a combination of rate hikes and relentless and continuous action to reduce costs and improve productivity,” the report states.
The vast majority of rated credits have strong balance sheets that will offset lower margins for some time and allow for operational improvements, but without more substantial changes to the current business model, or with additional coronavirus surges this fall or winter, the balance sheet cushion could eventually erode, leading to negative rating actions, Fitch said.
Inflationary pressures will also contribute to a continued wave of industry consolidation as hospitals seek to generate economies of scale and gain skills to enable them to take on additional risky contracts, Fitch said. A mitigating factor on this front is the increased regulatory scrutiny launched by the Biden administration last year over concerns that consolidation would hurt competition and drive up prices.