Hospitals brace for another Medicare cut next month

Hospitals have already endured a cut in Medicare funding this spring, and they are facing another reduction July 1.

Health systems and hospitals are looking at another cut next month. Under federal law, automatic cuts take effect when lawmakers can’t come to an agreement on budgets for certain federal programs in the process known as sequestration. In April, a 1% cut in Medicare payments took place.

Beginning July 1, Medicare is slated to receive another 1% cut, unless Congress intervenes.

The American Hospital Association is pressing Congress to act and prevent another Medicare cut from happening. Stacey Hughes, AHA’s executive vice president, wrote a letter to Congressional leaders urging them to put the brakes on the looming Medicare cut.

“Without immediate action, the AHA estimates hospitals will lose at least $3 billion by the end of the year,” Hughes wrote. “These further Medicare payment cuts threaten access to care for patients and communities.”

The AHA and other healthcare advocates have been pushing Congress to delay the Medicare cuts for months, citing the economic hardships hospitals have endured during the COVID-19 pandemic.

Hospitals have battled staff shortages, higher labor and supply costs, and burnout since the pandemic began in 2020. The hospital association pointed to the “dramatic rise” in labor expenses and other costs in an April report.

If the next Medicare cut takes place as scheduled, hospitals will encounter more financial headwinds at a difficult time.

Hospital operating margins have been in the red for four straight months, according to a report from Kaufman Hall. Health systems are looking at a tough year financially, the firm projects.

“The first four months of the year have been highly challenging for hospitals and health systems, and do not bode well for the remainder of the year,” the Kaufman Hall report stated. “Even if margins cumulatively return to pre-pandemic levels, many will still end up with substantially depressed margins at year’s end.”

Healthcare advocates have been pushing House and Senate leaders to delay the Medicare sequester cuts until the end of the COVID-19 public health emergency.

The Association of American Medical Colleges, America’s Essential Hospitals and about 50 other groups crafted a joint letter in February asking lawmakers for a moratorium on the Medicare cuts as long as the public health emergency remains in effect.

Health advocates previously succeeded in convincing Congress to delay the Medicare cuts, which were initially set to take place at the beginning of the year. The Medicare cuts were postponed three months and staggered, with a 1% cut starting in April and another 1% cut starting July 1.

Most hospitals rely on Medicare and Medicaid, and those programs reimburse hospitals less than the cost of care, the AHA says. Medicare and Medicaid pay fixed rates that are non-negotiable, the hospital association reminded lawmakers.

The AHA said 94% of hospitals have 50% or more of their inpatient days financed by Medicare or Medicaid. More than 75% of hospitals have two-thirds or more inpatient days paid by Medicare and Medicaid.

In the AHA letter to Congressional leaders, Hughes wrote, “Hospitals and health systems need financial relief from this pending cut in order to maintain access to care for the patients and communities they serve, while they continue to face dire financial and workforce pressures brought on by the COVID-19 pandemic.”