The’ proposed Medicare payment update for inpatient services is nowhere close to covering hospitals’ rising costs, industry groups warn the Centers for Medicare and Medicaid Services in comment letters.
Hospitals are calling on CMS to make further upward adjustments to the fiscal 2023 inpatient prospective payment system rule to compensate for underpredictions from this fiscal year’s rule and to eliminate a separate negative adjustment for the coming year.
“The current inflationary economy combined with the COVID-19 crisis has put unprecedented pressure on America’s hospitals and health systems,” the American Hospital Association wrote. “These shifts in the healthcare environment are putting enormous strain on hospitals and health systems, which will continue in FY 2023 and beyond.”
CMS proposed a 3.2% increase in Medicare inpatient payments for fiscal 2023, including a 3.1% market basket update, in a draft regulation issued in April. The market basket predicts future hospital costs using data from prior years. CMS incorporated data through the third quarter of 2021, but may use more recent information in the final rule, according to the draft regulation.
The market basket can adequately predict cost trends in a more stable economy but it doesn’t work well under the present circumstances, the AHA wrote.
“The end of calendar year 2021 into calendar year 2022 should not, in any sense, be considered a steady-state economic environment that is a continuance of past trends,” the AHA wrote. Using these data would result in “woefully inadequate reimbursements,” the letter says.
Furthermore, the 2.7% fiscal 2022 inpatient payment update underpredicted costs, industry representatives wrote. The 2022 market basket is now trending toward 4%, hospital groups note, citing CMS projections. “Because this market basket was a forecast of what was expected to occur, it missed the unexpected trends that actually did occur,” the AHA wrote.
Inflation jumped from 2.6% in March 2021 to 7% in December. The 2022 market basket didn’t anticipate that factor nor increased labor costs during the second half of 2021, the AHA wrote. Inflation reached a 40-year high this spring, and could accelerate even further this summer, Fannie Mae projected this month.
Pressures from the COVID-19 pandemic also strained hospitals over the past two years. Federal relief stabilized hospital finances in 2020, but the funding is nearly depleted.
Labor shortages and employee burnout have driven up workforce costs, the hospital groups wrote. Labor costs have risen more than 16% since the beginning of fiscal 2021, according to Premier.
But CMS has the authority to override the regulatory formula and increase payments to compensate for past underpredictions, the hospital associations contend. Federal law allows the agency to provide “exceptions and adjustments” to payment updates, as deemed appropriate.
Now is the time to use that authority, hospital groups argue.
“The unique and unprecedented circumstances confronted by IPPS hospitals today warrant CMS’s exercise of its exceptions and adjustments authority in the form of a one-time positive adjustment of no less than the amount by which the FY 2022 market basket update was understated,” the Federation for American Hospitals wrote in a comment letter.
CMS should use additional data sources to compile a more accurate market basket in the final 2023 rule that incorporates increasing labor and supply costs, wrote the federation, which comprises for-profit hospital companies.
America’s Essential Hospitals, which represents safety-net facilities, asks CMS to implement a market basket update of at least 5%. Premier encourages CMS to use the company’s own data for the 2023 market basket.
The overall 3.2% proposed pay increase also accounts for a negative 0.4 percentage point productivity adjustment. The adjustment is an Affordable Care Act creation meant to match payments to costs and equates to the 10-year average of productivity gains among all private U.S. businesses.
However, CMS research from 2016 shows that hospital costs do not grow at the same rate as other industries, the AHA wrote. Using other sectors to adjust hospitals’ market basket leads to underpayments, the organization wrote. The AHA and other industry groups ask CMS to use its authority to waive the cut.
“The AHA has deep concerns about the proposed productivity cut, given the extreme and uncontrollable circumstances in which hospitals and health systems are currently operating. As such, we ask CMS to use its ‘special exceptions and adjustments’ authority to eliminate the productivity cut for FY 2023,” the organization wrote.
While the productivity adjustment reduces the 3.1% market basket update to 2.7%, that’s partially offset by a 0.5-percentage point adjustment for documentation and coding that brings the net update up to 3.2%.
CMS will issue the final inpatient prospective payment system rule later this year.