FAH Hospital Policy Blog

Perspectives on health policy affecting America's hospitals and the patients we serve.

Medicare | Regulatory Relief | Chip Kahn

Inflation Presents “Clear Danger” to Seniors’ Health Care 

Surging inflation presents a clear danger to seniors’ health care. Their access to care will be jeopardized unless federal agencies make serious changes to the outdated system that calculates payment for Medicare treatment.  

Today’s report that the inflation rate hit its highest point since 1981 (9.1%), is just statistical proof of something hospitals are already experiencing – suddenly everything involved in patient care costs more…a lot more. 

Hospitals are feeling the financial strain of expenses rising dramatically for drugs, supplies and labor. In fact, over the past few years, spending per patient has increased by more than 20 or even 30 percent depending on the categories and location.   

This record-setting inflation, combined with the fact that our health care regulatory system is not appropriately designed to meet the rapidly changing financial pressures facing hospitals risks patient access to care. 

In the recent inpatient prospective payment system (IPPS) proposed rule, CMS suggested a market basket update of only 3.1 percent for FY 2023, which, like the FY 2022 market basket update of 2.7 percent, seriously understates the unprecedented inflationary environment that hospitals and health systems are experiencing.  

This woefully inadequate market basket update is a product of CMS’ reliance largely on historical data to forecast FY 2023 hospital operating costs without sufficient adjustments designed to capture the profoundly aberrant and historic economic forces that are fueling rapid cost increases for goods and services. 

In addition, CMS proposed reducing the inadequate proposed market basket update with a 0.4 percentage point productivity adjustment to calculate the net rate update. This productivity adjustment, itself a 10-year moving average that is not tied to the labor-intensive hospital industry makes no sense in the current economic environment.  In fact, the latest data actually indicates economy-wide productivity losses rather than gains. 

CMS needs to look at the real-world effects of the proposed policies and make the obvious and necessary adjustments that reflect current data and trends that are clearly not captured in the proposal. 

Faced with inflationary and other economic turmoil that is simply unprecedented since the early-80s implementation of an IPPS that was not structurally designed to respond, CMS must use the statutory lever it has — its “exceptions and adjustments” authority to adopt a: 

1) one-time adjustment that reflects the extent to which the current FY 2022 market basket update understated the rapidly rising costs of goods and services that hospitals are grappling with; and, 

2)  further 0.4 percentage point adjustment that fully offsets the FY 2023 proposed productivity adjustment, reflecting the inappropriateness of a negative productivity adjustment at a time when hospitals are facing productivity losses magnified by the ongoing pandemic and associated labor shortage that has challenged every facet of our health care delivery system generally and hospitals in particular. 

FAH also urges CMS to address the inadequacy of the proposed LTCH PPS Standard Federal Rate for FY 2023. Relying on historical data without methodological adjustments to account for profound inflationary forces will produce an inadequate LTCH market basket update, compounding the erosion of rates due to inadequate market basket updates in FY 2021 and FY 2022.  

We urge the agency to act swiftly before this affects patient’s access to care.