AHA: Federal funds needed to offset 20% per-patient increase in hospital expenses since 2019

A 19% increase in per-patient labor costs, 37% rise in per-patient drug spend and other expense growth over the last two years is at the core of the American Hospital Association's (AHA's) latest push for federal funding support.

In a new report compiling hospital expense trends from industry analysts, vendors, media and other sources, the trade group highlighted an 11% overall increase—as well as a 20% per-patient increase—in total hospital expenses from 2019 through the end of 2021.

Pairing these increases with economywide factors such as rising inflation has led to “billions in losses and over 33% of hospitals operating on negative margins,” the group wrote.

“While we have made great progress in the fight against the virus, this report shows that we are not out of the woods yet when it comes to addressing the need to repair and rebuild our hospitals,” AHA President and CEO Rick Pollack said in a statement. “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.”

A primary driver of expense growth cited by AHA and individual systems alike has been the heavy reliance on contract labor during COVID-19 surges.

Whereas hospitals spent a median 4.7% of their total nurse labor expenses on contract travel nurses in 2019, that median portion jumped to 38.6% by the top of 2022, the height of the omicron surge.

AHA also cited data showing the number of unique job postings for travel nurses more than doubled from January 2019 to January 2022 and that the average difference between what staffing agencies charge hospitals and pay their nurses has increased from 15% in January 2019 to 62%—reinforcing the industry group’s position that these staff agencies have been gouging hospitals through the pandemic.

“The data indicate that the growth in labor expenses for hospitals and health systems was in large part due to the exorbitant rates charged by contract staffing firms,” AHA wrote in the report. “By the end of 2021, hospital labor expenses per patient were 36.9% higher than pre-pandemic levels, and increased to 57% at the height of the omicron surge in January 2022.”

Non-labor expenses have also been on the uptick throughout the pandemic, AHA wrote. Hospitals’ total drug expenses grew 28.2% higher than pre-pandemic levels and as of January 2022 represent 10.6% of hospitals’ non-labor expenses (up from about 8.2% in January 2019).

Here, AHA downplayed the increasing acuity of hospital patients and focused much of the blame on manufacturers’ pricey new drugs and continued price increases on existing products. The group also called out the heavy use of COVID-19 therapies like remdesivir, drugmakers’ stance against the 340B drug program and health plans and pharmacy benefit managers’ so-called “white bagging” policies.

AHA’s report touched on other economic factors driven by the pandemic as well. For instance, supply chain troubles that forced many hospitals to secure local or nontraditional supplies contributed to a 15.9% increase in supply expenses from 2019 to 2021, with intensive care unit medical supplies and respiratory care medical supplies growing by 31.5% and 22.3%, respectively.

Rising inflation, meanwhile, is likely to reduce consumer demand for healthcare services, increase capital investment costs for hospitals and further stress the aforementioned labor market and supply chain, AHA wrote.

“The pandemic has clearly demonstrated that America cannot be strong without its hospitals and health systems being strong,” Pollack said. “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.”          

AHA released its pandemic hospital costs report in conjunction with its annual meeting in Washington, D.C. There, Centers for Medicare & Medicaid Services Administrator Chiquita Brooks-LaSure defended a 3.2% payment increase proposed in last week’s Inpatient Prospective Payment System, which the AHA and others argued was insufficient to meet hospitals’ rising costs.