‘Dramatic’ cost increases challenge hospitals

More than two years after the arrival of the coronavirus, hospitals are still dealing with significant financial challenges, according to a new report from the American Hospital Association.

Healthcare systems are dealing with higher labor and supply costs, even as they are treating patients with more severe illness and complex conditions.

While COVID-19 cases and hospitalizations are far below the peaks seen earlier this year, hospitals are still dealing with higher costs, said Rick Pollack, president and CEO of the American Hospital Association.

“The dramatic rise in costs of labor, drugs, supplies and equipment continue to put enormous pressure on our ability to provide care to our patients and communities,” Pollack said in a statement. “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.”

Hospitals and healthcare advocates have bristled at the federal government’s proposed payments for in-patient care. Medicare plans to raise rates in the Inpatient Prospective Payment System by 3.2% in 2023, an increase of $1.6 billion. But the hospital association said other cuts and reductions of aid would wipe out that increase, and hospitals could potentially see less money.

The AHA pointed out key areas where hospitals are dealing with higher costs.

Higher labor costs, fewer workers

Hospital labor costs were 19% higher through 2021 compared to the end of 2019, before the pandemic’s emergence. The higher labor costs are more glaring because hospital employment nationwide has dropped by 100,000 since the arrival of COVID-19, the AHA says, citing federal statistics.

Hospitals cite higher wages charged by contract labor firms, including travel nurses. The hourly billing rates that hospitals pay staffing firms for contract workers increased 213% compared to pre-pandemic levels, the association said. The AHA and other healthcare groups have asked Congress and federal regulators to see if price gouging is taking place.

Contract or travel nurses accounted for 3.9% of the hours worked by nurses in hospitals in January 2019, but that number rose to 23.4% in January 2022, according to data from Syntellis Performance Solutions.

In 2019, hospitals spent a median of 4.7% of their labor expenses on travel nurses, but that travel nurse expenses surged to 38.6% of all nursing costs in January 2022, according to the report.

Nurses, for their part, have said they have been pushed to exhaustion and hospitals haven’t provided adequate pay or support, which has driven some nurses to seek positions as travel nurses.

Drug costs surged

Total drug expenses for hospitals were 28.2% higher at the end of 2021 compared to pre-pandemic levels, according to the report.

While some of the rise can be attributed to patients with more serious illness, the hospital association report said “a significant driver has been the continued increase in prices of existing drugs as well as the introduction of new products at very high prices.”

Drug companies raised the price of more than 800 brand and generic drugs by an average of 5.1% in January 2022, according to a study by GoodRx.

In addition, a Kaiser Family Foundation study found that in Medicare Part B and D markets, half of all drugs had price hikes above the rate of inflation between 2019 and 2020, the AHA noted. For a third of those drugs, the price increases were more than 7.5%.

The hospital association also noted that some pharmaceutical companies aren’t offering discounts on certain drugs in the 340B program, a program designed to allow hospitals with a large number of patients with lower incomes to buy outpatient drugs at lower prices.

Critics have said the 340B program needs reform and some hospitals aren’t providing enough charity care or passing savings in drug prices onto patients. Many hospitals say the program helps them provide essential care to patients in underserved communities.

Supply costs climb

Through the end of 2021, hospital supply expenses had risen 15.9%, compared to pre-pandemic levels in 2019.

But some areas dealing with COVID-19 patients faced greater expenses. Medical supply expenses in intensive care units rose 31.5%, while respiratory care departments are dealing with a 22.3% jump in supply costs, compared to 2019.

Health systems are also waiting a lot longer for their supplies. The AHA cited data from the Health Industry Distributors Association, indicating transportation times for medical supplies are a whopping 440% longer than they were before the arrival of COVID-19.

Impact of inflation

The AHA report also noted that hospitals could endure more financial headaches as inflation challenges the entire American economy.

Rising prices could lead to labor groups seeking higher wages to deal with the increased cost in living, and hospitals could pay more for key medical supplies.

If building material costs continue to rise, some hospitals would likely pay more for construction projects.