Medicare’s forecast for the current fiscal year assumed that hospital costs would increase by about 2.7%, but in reality those costs are likely to increase by 5% or more. This problem is not unique to Medicare, but large programs follow fixed schedules, have long time lags, and are slow to adapt.
The latest monthly update of the Consumer Price Index, released Wednesday, continues to show overall inflation near a 40-year high, with prices up 8.5% over the past 12 months. This high standard is driven by double-digit growth in items such as gas, food and vehicles.
In contrast, consumer prices for health services rose modestly at 5.1%, with much of the increase attributed to higher profits for private insurers. Prices for medical supplies, including prescription drugs and wheelchairs, have risen even more slowly, by just 3.7% over the past 12 months. There is also a lag of at least 10 months before drug and device prices increase due to the widely adopted CPI calculation method.
“Even if you look at the best measure of healthcare inflation, you really don’t know there’s something extraordinary going on right now, which is in stark contrast to the economy as a whole,” said a senior USC official. Matthew Fiedler, Fellow of the Brookings Shaffer Initiative for Health Policy, told POLITICO.
While lower healthcare costs will benefit consumers in the short term, many healthcare providers believe rising costs are putting pressure on their balance sheets.
“We are dealing with a significant rise in input prices that is directly related to inflation, much of it driven by workers,” said Richard Pollack, president and CEO of the American Hospital Association, in an interview. It’s caused,” he said. “When you look at the numbers we’re struggling with, hospitals are experiencing a significant drop in operating margins.”
Wages have risen due to severe staff shortages linked to the Covid-19 pandemic, but providers are now battling an entire labor market that forces all sectors to compete for workers in short supply. I’m here.
In addition to staff, which make up more than half of the average hospital budget, facilities are also feeling the effects of inflation on supplies, medicines, food and energy, Pollack said.
Providers are also working to reinstate budget sequestration cuts that were suspended during the pandemic, lowering Medicare rates by another 2 percent.
For now, the provider’s loss is the consumer’s gain. If Medicare pays less for health care services, it could reduce premiums and costs for program beneficiaries. And the private sector often follows in the footsteps of Medicare, the largest healthcare provider in the United States.
“I think there’s a good chance this could end well. I can understand why hospitals don’t like it, but from a financial standpoint and a patient standpoint, it certainly has a lot of features,” Fiedler said. has said.
Meanwhile, health care provider groups say low payment rates and staff shortages will reduce access to care if facilities are forced to limit operations or close.
For Medicare at least, the inflationary hiatus could soon come to an end.
The newly updated payment rules announced by CMS last week assume a 4.1 percentage point increase in input costs next year, which will provide a significant boost to higher payments.
The National Health Care Association and the National Center for Assisted Living, which represent nursing homes and other long-term care facilities, applauded the increase but warned that state Medicaid programs must follow suit.
The AHA likewise welcomed the price increase, but said it fell short of the group’s own estimates of increased costs to provide hospital care.
“That’s just not enough,” said Pollack. “Certainly, it’s an improvement from where they started, and we appreciate that, but there’s still a big gap.”
And since Medicare premiums are based solely on future projections, there is no mechanism for price increases to “catch up” and the undervaluation of last year is not corrected. As a result, hospitals, nursing homes, and other providers associated with payment systems will feel the gap for years to come.