Hospitals' chronic payment problem

CMS has finalized a 2.9% pay increase for hospital outpatient services in 2025, but the American Hospital Association argues that the incremental pay bump is well below what hospitals need to meet today's operational challenges. 

"Medicare's sustained and substantial underpayment of hospitals has stretched for almost two decades, and today's final outpatient rule only worsens this chronic problem," AHA Senior Vice President Ashley Thompson said in a Nov. 1 statement. "The agency's final increase of less than 3% for outpatient hospital services will make the provision of care, investments in the healthcare workforce and addressing new challenges, such as cybersecurity threats, more difficult. These inadequate payments will have a negative impact on patient access to care, especially in rural and underserved communities nationwide."

Hospital margins are gradually improving across the industry, but nearly 40% of facilities are still operating in the red and there is a growing divide between higher- and lower-performing hospitals, according to Kaufman Hall. Multiple factors are contributing to this growing divide, including market positioning, payer mix, depth of outpatient services, wage inflation and the management of contract labor. 

CMS' outpatient payment final rule comes three months after the agency finalized a 2.9% pay increase for inpatient hospital payments in 2025. 

The 2.9% pay bump is a marginal increase from the 2.6% increase CMS initially proposed in April, but the AHA argues the "inadequate" payment update does little to help the inpatient hospital sector when 40% of hospitals are still losing money. 

"CMS' payment updates for hospitals will exacerbate the already unsustainable negative or breakeven margins many hospitals are already operating under as they care for their patients," Molly Smith, AHA group vice president for public policy, said in a statement. "The AHA is deeply concerned about the impact these inadequate payments will have on patient access to care, especially in rural and underserved communities."

Chip Kahn, president and CEO of the Federation of American Hospitals, said the organization has raised concerns that CMS hospital payment updates have failed to reflect inflation and the costs of hospital care that remain high. 

"Frankly, these inadequate payment updates and CMS' real Medicare DSH cuts for the most vulnerable leave hospitals struggling to meet patient needs," Mr. Kahn said. "To add insult to injury, [the] final rule makes this problem worse with an unnecessary Center for Medicare and Medicaid Innovation TEAM demonstration that would impose a mandatory payment model on hundreds of hospitals across the country. This demonstrates excessive burden on hospitals will reduce seniors' access to elective services and force hospitals serving the country's most vulnerable patients to take on additional financial risk."

The AHA and FAH have also objected to two senators' policy framework that details a plan to impose site-neutral payments on hospitals.

A site-neutral payment policy would mean that payment for a healthcare service provided to a patient would be the same regardless of the setting in which the service occurs. Proponents of the policy see it as a way to reduce healthcare costs for patients and for taxpayers through Medicare, but they would result in large pay cuts to hospitals and health systems. 

Hospitals argue that their higher prices stem from the larger overhead costs they incur compared to other providers, such as emergency services and 24-hour access, regulatory compliance, and supply and labor costs.

The latest framework, introduced by U.S. Sens. Bill Cassidy, MD, R-La., and Maggie Hassan D-N.H., on Nov. 1, claims that the policy would reduce healthcare costs for patients, improve the financial stability of Medicare, reduce provider consolidation and help rural hospitals serving high-need communities.

However, the AHA argues that this framework would limit or eliminate critical hospital-based care, resulting in increased wait times and decreased access to care.

"It is irresponsible to think that clawing back up to $140 billion of Medicare spending for seniors won't destabilize access to care," AHA Executive Vice President Stacey Hughes said in a statement. "Rather than addressing the root causes driving physician acquisitions, this instead proposes dramatic and untenable Medicare cuts, reducing seniors' access to critical hospital-based care.

Copyright © 2024 Becker's Healthcare. All Rights Reserved. Privacy Policy. Cookie Policy. Linking and Reprinting Policy.

 

Articles We Think You'll Like

 

Featured Whitepapers

Featured Webinars