MedPAC: Hospitals don't need a big Medicare boost in 2024

General acute care hospitals don't need a significant increase in 2024 Medicare rates to stay afloat, according to the Medicare Payment Advisory Commission's annual March report to Congress.

"The Commission anticipates that a fiscal year 2024 update to hospital payment rates of current law plus 1 percent would generally be adequate to maintain FFS beneficiaries' access to hospital inpatient and outpatient care and keep IPPS and OPPS payment rates close to the cost of delivering high quality care efficiently," the group of Medicare policy experts wrote.

The updated payment recommendations for 2024 are a departure from how industry groups' would characterize the financial challenges many hospitals have described in recent years. MedPAC said its new report reflects 2021 data, preliminary data from 2022, and projections for 2023, along with recent inflation rates.

The commission found that most indicators of sufficient Medicare rates for providers were positive or improved in 2021, though it acknowledged that hospitals saw more volatile cost increases in 2022 compared to years prior.

Hospital margins were also lower last year than in 2021 according to preliminary data, driven in part by providers facing higher than expected costs and capacity and staffing challenges.

"For 2023, we project IPPS hospitals' Medicare margin will decrease to about –10 percent (similar to the level in 2017), and the median Medicare margin for relatively efficient hospitals will decline to modestly below break-even, similar to pre-pandemic levels," MedPAC said. 

The commission wrote that among the 16 general acute care hospitals that closed in fiscal year 2022, Medicare rates were not a main factor in their financial challenges, and the same number of similar facilities opened the same year — no secured buyer or low patient volumes were the biggest contributors to closures.

"...many hospitals can substantially lower their costs over a matter of months," MedPAC wrote, referring to quick operational changes needed at the peak of the COVID-19 pandemic. "We expect that hospitals will have an even greater ability to adjust costs to patient volume when they have a longer period to adjust to environmental changes and the resulting long-term changes in volume that can be anticipated."

The report also said that its 2024 payment recommendations "may not be sufficient" to sustain some safety-net hospitals with a low number of commercially insured patients and recommended distributing Medicare payments through its Medicare Safety-Net Index, along with adding $2 billion in add-on payments to "help maintain the financial viability of Medicare safety-net hospitals. 

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