‘Woefully inadequate’: Hospitals criticize Medicare's proposed payment plan

Hospitals aren’t hiding their displeasure with the federal government’s proposed reimbursement rates for 2024.

The Centers for Medicare & Medicaid services released its proposed 2024 Inpatient Prospective Payment System rule this week. The proposal spells out how much Medicare plans to pay hospitals for delivering acute care. CMS has proposed a 2.8% increase in its rate for inpatient care in 2024.

In addition, long-term care hospitals would see a 2.5% reduction in Medicare payments for those facilities, under the CMS proposal. (Here’s a CMS fact sheet with details on the proposals.)

The American Hospital Association says it is deeply disappointed with the proposal. Hospitals have struggled with inadequate federal reimbursements for patient care for years, and they have been dealing with higher labor expenses and inflation.

Ashley Thompson, AHA’s senior vice president for public policy analysis and development, said it’s especially frustrating because 2022 was the worst year for hospitals financially in the COVID-19 pandemic.

“The AHA is deeply concerned with CMS’ woefully inadequate proposed inpatient hospital payment update of 2.8% given the near decades-high inflation and increased costs for labor, equipment, drugs and supplies,” Thompson said in a statement.

“Moreover, long-term care hospitals would see a staggering negative 2.5% payment update under this proposal. These insufficient adjustments are simply unsustainable.”

The federal government continues to understate the higher costs hospitals are facing, Thompson said.

“Layering these inadequate inflationary adjustments on top of Medicare’s existing underpayments to hospitals does not reflect the reality of the world hospitals are providing care in,” Thompson said in a statement. “Without more substantial updates in the final rule, hospitals’ ability to continue caring for patients and providing essential services for their communities will be threatened.”

Beth Feldpush, senior vice president of policy and advocacy for America’s Essential Hospitals, described the proposed 2.8% increase for inpatient care as “lackluster.”

“Ongoing pressures, such as inflation and high labor and supply costs, demand a stronger investment by Medicare, a critical source of support for essential hospitals and the communities they serve,” Feldpush said in a statement.

More help for safety net hospitals

At the same time, America’s Essential Hospitals, which represents safety net hospitals, praised one aspect of Medicare’s proposal.

CMS is asking for information on ways to better support safety net hospitals as it aims to improve health equity, a key priority for President Biden’s administration. The federal government notes the critical work of safety net hospitals in providing care to underserved communities, including members of minority groups, residents in rural areas and LGBTQ+ patients.

“CMS is seeking public input on the unique challenges faced by safety-net hospitals and the patients they serve, and potential approaches to help safety-net hospitals meet those challenges,” the agency said.

Advocates for safety net hospitals have been arguing for a special federal designation that would offer targeting funding for those critical providers.

“Establishing a safety net hospital definition is a long-overdue initiative critical to stabilizing and supporting essential hospitals and their vital role in our health care system,” Feldpush said in a statement.

“We look forward to working with the Centers for Medicare & Medicaid Services to ensure it adopts an accurate and comprehensive definition and steers clear of definitions that fail to account for the diversity of the low-income Medicare, Medicaid, and uninsured patients who rely on the nation’s safety net,” she added.

Roughly half of America’s hospitals suffered negative operating margins in 2022, according to Kaufman Hall, the healthcare consulting firm.

So far, 2023 is proving to be a difficult year financially for hospitals, as health systems continue to pay higher labor costs and inflation is driving up the cost of supplies, according to Fitch Ratings.

Other proposals

The 2024 CMS proposals also included other noteworthy components.

Rural training

CMS is proposing to revise payments for graduate medical education for Rural Emergency Hospitals, to offer more support for medical training in rural areas.

DSH payments

In 2024, CMS is estimating a $240 million cut in aid for Medicare’s Disproportionate Share Hospital (DSH) program in 2024. Total payments would be $10.12 billion, according to America’s Essential hospitals.

Health equity

The Biden administration is striving to gain more insight in closing gaps in care for underserved groups. CMS is proposing to add 15 new health equity measures as part of its payment impacts for inpatient care, which the AHA says is designed to reward providers who are offering high-quality care to underserved communities.

CMS is accepting comments on the proposals through June 9.