Hospital groups are calling for the Biden administration to overhaul how it calculates Medicare payments for next year, commenting that the current system hasn’t accounted for massive spikes in inflation.
Several hospital and provider groups are pressing the Centers for Medicare & Medicaid Services (CMS) to go beyond a 2.7% hike to Medicare payments for outpatient services in 2023. Groups also want CMS to repay hospitals for years of cuts to the 340B drug discount program.
The proposed Outpatient Prospective Payment System (OPPS) rule called for a 3.1% increase to the market basket rate, minus a productivity adjustment of 0.4%. The market basket update, however, is calculated based on an estimate of goods and services over the next year.
Provider groups say this method hasn’t kept pace with wild swings in the economy.
“The market basket is a time-lagged estimate that cannot fully account for unexpected changes that occur, such as historic inflation and increased labor and supply costs faced by the healthcare industry that began in late 2021 but have continued at an increased pace in 2022,” wrote the American Hospital Association (AHA) in comments.
The AHA added that the inflation rate has skyrocketed from 2.6% in March 2021 to 7% in December 2021. The market basket update was not able to fully account for this inflationary surge.
The Federation of American Hospitals (FAH) commented that a recent report from consulting firm Kaufman Hall showed year-over-year cost growth of 7.6% from July 2021 through July 2022.
In addition, CMS didn’t account for a labor crisis roiling the hospital industry, including increased costs for contract labor.
“Essential hospitals, in particular, have incurred considerable costs associated with hiring bonuses, retention bonuses and increased salaries to recruit and retain nurses and other staff in short supply,” wrote America’s Essential Hospitals, which represents safety net facilities, in its own comments.
The labor crisis also influenced comments from groups surrounding a 0.4% productivity cut in the proposed rule. The OPPS rule is updated by a productivity factor that looks at changes in the private, nonfarm economy.
While the private economy has seen a rapid output in gains and productivity in 2021, “the same has not been true for hospital services,” the AHA commented. “Generally, hospital services have not recovered to pre-pandemic levels, and it is highly unlikely that hospitals have achieved the significant productivity gains incorporated into the proposed … payment update.”
The FAH said that CMS’ market basket data may show a lower increase in staffing because it doesn’t consider hospitals’ reliance on contract labor. Federal data only capture salary increases for employed staff, but not “the extraordinary growth in labor costs associated with hospitals’ necessary reliance on nursing personnel that are contracted through staffing agencies.”
The comments are the latest criticism the provider industry has levied over how CMS calculates Medicare payments. Several physician groups charged that the calculation of a 4.5% decline for physician payments was also flawed.
340B remedy proposal
Hospital groups applauded CMS’ decision to not include further cuts to the 340B drug discount program in the proposed rule. The agency installed a nearly 30% cut to 340B drug payments starting in 2018.
However, the Supreme Court ruled in late June that the cuts were unlawful.
While CMS did not include the cuts again, it did not say how it will make hospitals whole. Hospital groups said the agency should simply reimburse hospitals for the amount that was cut dating back to 2018.
“Speedy repayment to 340B hospitals is crucial,” America’s Essential Hospitals commented. “To be clear, under no circumstances should a remedy involve a new survey of acquisition costs.”
The group said that such a survey would contradict the Supreme Court’s ruling, and the agency “cannot retroactively cure its past unlawful conduct with a new survey.”
The FAH also said that any repayment should not come from offsets in other payments to providers. The OPPS must be budget neutral for any prospective payments.
However, to apply budget neutrality to any retrospective requirement “would be inconsistent with the text and structure of the statute and wreak havoc on Medicare’s payment systems,” wrote the FAH.