Inflation Is Squeezing Hospital Margins—What Happens Next?

https://www.healthaffairs.org/content/forefront/inflation-squeezing-hospital-margins-happens-next

Hospitals in the United States are on track for their worst financial year in decades. According to a recent report, median hospital operating margins were cumulatively negative through the first eight months of 2022. For context, in 2020, despite unprecedented losses during the initial months of COVID-19, hospitals still reported median eight-month operating margins of 2 percent—although these were in large part buoyed by federal aid from the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

The recent, historically poor financial performance is the result of significant pressures on multiple fronts. Labor shortages and supply-chain disruptions have fueled a dramatic rise in expenses, which, due to the annually fixed nature of payment rates, hospitals have thus far been unable to pass through to payers. At the same time, diminished patient volumes—especially in more profitable service lines—have constrained revenues, and declining markets have generated substantial investment losses.

While it’s tempting to view these challenges as transient shocks, a rapid recovery seems unlikely for a number of reasons. Thus, hospitals will be forced to take aggressive cost-cutting measures to stabilize balance sheets. For some, this will include department or service line closures; for others, closing altogether. As these scenarios unfold, ultimately, the costs will be borne by patients, in one form or another.

Hospitals Face A Difficult Road To Financial Recovery

There are several factors that suggest hospital margins will face continued headwinds in the coming years. First, the primary driver of rising hospital expenses is a shortage of labor—in particular, nursing labor—which will likely worsen in the future. Since the start of the pandemic, hospitals have lost a total of 105,000 employees, and nursing vacancies have more than doubled. In response, hospitals have relied on expensive contract nurses and extended overtime hours, resulting in surging wage costs. While this issue was exacerbated by the pandemic, the national nursing shortage is a decades-old problem that—with a substantial portion of the labor force approaching retirement and an insufficient supply of new nurses to replace them—is projected to reach 450,000 by 2025.

Second, while payment rates will eventually adjust to rising costs, this is likely to occur slowly and unevenly. Medicare rates, which are adjusted annually based on an inflation projection, are already set to undershoot hospital costs. Given that Medicare doesn’t issue retrospective corrections, this underadjustment will become baked into Medicare prices for the foreseeable future, widening the gap between costs and payments.

This leaves commercial payers to make up the difference. Commercial rates are typically negotiated in three- to five-year contract cycles, so hospitals on the early side of a new contract may be forced to wait until renegotiation for more substantial pricing adjustments. “Negotiation is also the operative term here, as payers are under no obligation to offset rising costs. Instead, it is likely that the speed and degree of price adjustments will be dictated by provider market share, leaving smaller hospitals at a further disadvantage. This trend was exemplified during the 2008 financial crisis, in which only the most prestigious hospitals were able to significantly adjust pricing in response to historic investment losses.

Finally, economic uncertainty and the threat of recession will create continued disruptions in patient volumes, particularly with elective procedures. Although health care has historically been referred to as “recession-proof,” the growing prevalence of high-deductible health plans (HDHPs) and more aggressive cost-sharing mechanisms have left patients more exposed to health care costs and more likely to weigh these costs against other household expenditures when budgets get tight. While this consumerist response is not new—research on previous recessions has identified direct correlations between economic strength and surgical volumes—the degree of cost exposure for patients is historically high. Since 2008, enrollment in HDHPs has increased nearly four-fold, now representing 28 percent of all employer-sponsored enrollments. There’s evidence that this exposure is already impacting patient decisions. Recently, one in five adults reported delaying or forgoing treatment in response to general inflation.

Taken together, these factors suggest that the current financial pressures are unlikely to resolve in the short term. As losses mount and cash reserves dwindle, hospitals will ultimately need to cut costs to stem the bleeding—which presents both challenges and opportunities.

Direct And Indirect Consequences For Cost, Quality, And Access To Care

Inevitably, as rising costs become baked into commercial pricing, patients will face dramatic premium hikes. As discussed above, this process is likely to occur slowly over the next few years. In the meantime, the current challenges and the manner in which hospitals respond will have lasting implications on quality and access to care, particularly among the most vulnerable populations.

Likely Effects On Patient Experience And Quality Of Care

Insufficient staffing has already created substantial bottlenecks in outpatient and acute-care facilities, resulting in increased wait times, delayed procedures, and, in extreme cases, hospitals diverting patients altogether. During the Omicron surge, 52 of 62 hospitals in Los Angeles, California, were reportedly diverting patients due to insufficient beds and staffing.

The challenges with nursing labor will have direct consequences for clinical quality. Persistent nursing shortages will force hospitals to increase patient loads and expand overtime hours, measures that have been repeatedly linked to longer hospital stays, more clinical errors, and worse patient outcomes. Additionally, the wave of experienced nurses exiting the workforce will accelerate an already growing divide between average nursing experience and the complexity of care they are asked to provide. This trend, referred to as the “Experience-Complexity Gap,” will only worsen in the coming years as a significant portion of the nursing workforce reaches retirement age. In addition to the clinical quality implications, the exodus of experienced nurses—many of whom serve in crucial nurse educator and mentorship roles—also has feedback effects on the training and supply of new nurses.

Staffing impacts on quality of care are not limited to clinical staff. During the initial months of the pandemic, hospitals laid off or furloughed hundreds of thousands of nonclinical staff, a common target for short-term payroll reductions. While these staff do not directly impact patient care (or billed charges), they can have a significant impact on patient experience and satisfaction. Additionally, downsizing support staff can negatively impact physician productivity and time spent with patients, which can have downstream effects on cost and quality of care.

Disproportionate Impacts On Underserved Communities

Reduced access to care will be felt most acutely in rural regions. recent report found that more than 30 percent of rural hospitals were at risk of closure within the next six years, placing the affected communities—statistically older, sicker, and poorer than average—at higher risk for adverse health outcomes. When rural hospitals close, local residents are forced to travel more than 20 miles further to access inpatient or emergency care. For patients with life-threatening conditions, this increased travel has been linked to a 5–10 percent increase in risk of mortality.

Rural closures also have downstream effects that further deteriorate patient use and access to care. Rural hospitals often employ the majority of local physicians, many of whom leave the community when these facilities close. Access to complex specialty care and diagnostic testing is also diminished, as many of these services are provided by vendors or provider groups within hospital facilities. Thus, when rural hospitals close, the surrounding communities lose access to the entire care continuum. As a result, individuals within these communities are more likely to forgo treatment, testing, or routine preventive services, further exacerbating existing health disparities.

In areas not affected by hospital closures, access will be more selectively impacted. After the 2008 financial crisis, the most common cost-shifting response from hospitals was to reduce unprofitable service offerings. Historically, these measures have disproportionately impacted minority and low-income patients, as they tend to include services with high Medicaid populations (for example, psychiatric and addiction care) and crucial services such as obstetrics and trauma care, which are already underprovided in these communities. Since 2020, dozens of hospitals, both urban and rural, have closed or suspended maternity care. Similar to closure of rural hospitals, these closures have downstream effects on local access to physicians or other health services.

Potential For Productive Cost Reduction And The Need For A Measured Policy Response

Despite the doom-and-gloom scenario presented above, the focus on hospital costs is not entirely negative. Cost-cutting measures will inevitably yield efficiencies in a notoriously inefficient industry. Additionally, not all facility closures negatively impact care. While rural facility closures can have dire consequences in health emergencies, studies have found that outcomes for non-urgent conditions remained similar or actually improved.

Historically, attempts to rein in health care spending have focused on the demand side (that is, use) or on negotiated prices. These measures ignore the impact of hospital costs, which have historically outpaced inflation and contributed directly to rising prices. Thus, the current situation presents a brief window of opportunity in which hospital incentives are aligned with the broader policy goals of lowering costs. Capitalizing on this opportunity will require a careful balancing act from policy makers.

In response to the current challenges, the American Hospital Association has already appealed to Congress to extend federal aid programs created in the CARES Act. While this would help to mitigate losses in the short term, it would also undermine any positive gains in cost efficiency. Instead of a broad-spectrum bailout, policy makers should consider a more targeted approach that supports crucial community and rural services without continuing to fund broader health system inefficiencies.

The establishment of Rural Emergency Hospitals beginning in 2023 represents one such approach to eliminating excess costs while preventing negative patient consequences. This rule provides financial incentives for struggling critical access and rural hospitals to convert to standalone emergency departments instead of outright closing. If effective, this policy would ensure that affected communities maintain crucial access to emergency care while reducing overall costs attributed to low-volume, financially unviable services.

Policies can also help promote efficiencies by improving coverage for digital and telehealth services—long touted as potential solutions to rural health care deserts—or easing regulations to encourage more effective use of mid-level providers.

Conclusion

The financial challenges facing hospitals are substantial and likely to persist in the coming years. As a result, health systems will be forced to take drastic measures to reduce costs and stabilize profit margins. The existing challenges and the manner in which hospitals respond will have long-term implications for cost, quality, and access to care, especially within historically underserved communities. As with any crisis, though, they also present an opportunity to address industrywide inefficiencies. By relying on targeted, evidence-based policies, policy makers can mitigate the negative consequences and allow for a more efficient and effective system to emerge.

Patient acuity is driving up hospital costs, AHA says

https://www.healthcarefinancenews.com/news/patient-acuity-driving-hospital-costs-aha-says?mkt_tok=NDIwLVlOQS0yOTIAAAGGiU3xe0NkF9CXkX2TRevw1rc34F0gW3xrh4u01QiSJCzDyJT2rG2TAkJAz344ryPgANhHM9yerPG9lZlib0xHBLXAwqAMIXRTIvQXgJLT

The AHA wants Congress to halt Medicare payment cuts and extend or make permanent certain waivers, among other requests.

The American Hospital Association has released a report on patient acuity that shows hospital patients are sicker and more medically complex than they were before the COVID-19 pandemic.

This is driving up hospital costs for labor, drugs and supplies, according to the AHA report. 

Hospital patient acuity, as measured by average length of stay, rose almost 10% between 2019 and 2021, including a 6% increase for non-COVID-19 Medicare patients as the pandemic contributed to delayed and avoided care, the report said. For example, the average length of stay rose 89% for patients with rheumatoid arthritis and 65% for patients with neuroblastoma and adrenal cancer. 

In 2022, patient acuity as reflected in the case mix index rose 11.1% for mastectomy patients, 15% for appendectomy patients and 7% for hysterectomy patients.

WHY THIS MATTERS

Mounting costs, combined with economy-wide inflation and reimbursement shortfalls, are threatening the financial stability of hospitals around the country, according to the AHA report.

The length of stay due to increasing acuity is occurring at a time of significant financial challenges for hospitals and health systems, which have still not received support to address the Delta and Omicron surges that have comprised the majority of all COVID-19 admissions, the AHA said. 

The AHA is asking Congress to halt its Medicare payment cuts to hospitals and other providers; extend or make permanent certain waivers that improve efficiency and access to care; extend expiring health insurance subsidies for millions of patients; and hold commercial insurers accountable for improper and burdensome business practices.

THE LARGER TREND

Hospitals, through the AHA, have long been asking the federal government for relief beyond what’s been allocated in provider relief funds.

In January, the American Hospital Association sought at least $25 billion for hospitals to help combat workforce shortages and labor costs exacerbated by what the AHA called “exorbitant” rates on the part of some staffing agencies. The Department of Health and Human Services released $2 billion in additional funding for hospitals.

In March, the AHA asked Congress to allocate additional provider relief funds beyond the original $175 billion in the Coronavirus Aid, Relief and Economic Security Act.

Earlier this month, the Centers for Medicare and Medicaid Services increased what it originally proposed for payment in the Inpatient Prospective Payment system rule. The AHA said the increase was not enough to offset expenses and inflation.

How hospitals are cutting back to reduce costs

Despite efforts to curtail high expenses, rising inflation and declining federal aid have led many hospitals to begin laying off workers and cutting certain services, Katheryn Houghton writes for Kaiser Health News.

Hospital costs have skyrocketed during the pandemic

At the beginning of the pandemic, hospitals’ financial challenges were largely related to the costs of responding to Covid-19 and missed revenue due to delayed care. However, hospital leaders now say their financial situations are a result of the omicron surge, rising inflation, and growing staffing challenges.

Many hospitals received millions of dollars in federal aid during the pandemic, but much of that money has since dwindled. For example, Bozeman Health said it received $20 million in aid in 2020, but this decreased to $2.5 million in 2021 and around $100,000 in 2022.

Many health systems say low surgery volumes, high supply costs, higher acuity patients, and languishing investments have all contributed to their declining revenues and growing expenses. In particular, labor costs have increased significantly during the pandemic, particularly as staffing shortages pushed hospitals to use more contract workers.

“If you talk with just about any hospital leader across the country, they would put workforce as their top one, two, and three priorities,” said Akin Demehin, senior director of quality and patient safety policy for the American Hospital Association.

According to Brad Ludford, CFO at Bozeman Health, the system spent less than $100,000 a month on contract workers before the pandemic, but that has now increased to roughly $1.4 million a week. Overall, the health system’s labor costs have increased around 12% from the same time last year, reaching around $20 million a month, during the first half of the year.

John Romley, a health economist and senior fellow at the Schaeffer Center for Health Policy and Economics at the University of Southern California, said some hospitals are likely now losing money, particularly with less federal aid coming in and growing inflation on top of their already high expenses.

For example, Bozeman Health president and CEO John Hill said the health system spent $15 million more than it earned in the first six months of the year. Several other health systems, including Providence, have also reported net operating losses this year.

Hospitals lay off workers, cut services to help reduce expenses

To reduce expenses, many hospitals are beginning to lay off workers and cut certain services, which has forced some patients to travel farther to receive care.

For example, Bay Area Hospital in Oregon recently ended 56 contracts with travel nurses and cut its inpatient behavioral health services due to the high costs of quickly filling vacant positions. Hospitals in California, Mississippi, New York, Oregon, and other states have also had to reduce the sizes of their workforces.

St. Charles Health System, headquartered in Bend, Oregon, laid off 105 workers and eliminated 76 vacant positions in May. The system’s CEO at the time, Joe Sluka, said, “It has taken us two pandemic years to get us into this situation, and it will take at least two years for us to recover.”

Similarly, Bozeman Health has laid off 28 workers in leadership positions and has not been able to provide inpatient dialysis at its largest hospital for months.

According to Hill, Bozeman took several other measures before deciding to cut jobs, including stopping out-of-state business travel, readjusting workloads, and reducing executive compensation. At the same time, it worked to transition contract workers to full-time employees and offered existing staffers a minimum-wage increase.

However, “[i]t still has not been enough,” Hill said. The health system currently has 487 open positions for essential workers.

According to Vicky Byrd, an RN and CEO of the Montana Nurses Association, hospitals should be offering longtime employees the same incentives they use to recruit new workers, such as bonuses for longevity and premium pay for taking extra shifts, to increase retention.

“It’s not just about recruiting — you can get anybody in the door for $20,000 bonuses,” Byrd said. “But how are you going to keep them there for 10 or 20 years?”

Going forward, some hospitals are considering automating more of their services, such as allowing patients to order food through an iPad instead of an employee, and are trying to adjust workloads, including having more flexible schedules, to retain their current workers.

“Now that we’ve adapted to life with covid in many regards in the clinical setting, we are dealing with the repercussions of how the pandemic impacted our staff and our communities as a whole,” said Wade Johnson, CEO of St. Peter’s Health

Biden Administration Releases Final Surprise Billing Rules

 The Biden Administration has released final surprise billing rules implementing the No Surprises Act, a federal law enacted in January 2021 that protects patients from out-of-network medical bills when they seek care at in-network facilities.

The new surprise billing rules detail the process for payers and providers to settle on payment for those out-of-network services. Previously, payers and providers would submit payment rates to an independent arbiter, selected by the government. The arbiter would choose the rate closest to the area’s median in-network payment for the services, otherwise known as the qualifying payment amount (QPA), while considering other factors, such as provider training and experience, the provider’s market share, and how difficult it was to provide the service, after the fact.

Provider groups have criticized the use of the QPA as the primary factor in an arbiter’s decision, arguing that the added weight to the QPA amount favors payers over providers.

Notably, the Texas Medical Association challenged the surprise billing arbitration process over the QPA issue and won. A district court vacated the requirement that arbiters select payment offers closest to the QPA unless the additional information warrants a closer review.

The American Hospital Association (AHA) and the American Medical Association (AMA) have also filed a lawsuit challenging the interim final rule implementing the dispute process, arguing that lawmakers did not intend for rules implementing the No Surprises Act to place that much emphasis on the QPA. The lawsuit is ongoing.

In light of the district court’s decision, the latest final surprise billing rules roll back the “rebuttable presumption” that favors the QPA. The rules state that arbiters are to consider the QPA “and then must consider all additional information submitted by a party to determine which offer best reflects the appropriate out-of-network rate.”

The final rules specify that arbiters “should select the offer that best represents the value of the item or service under dispute after considering the QPA and all permissible information submitted by the parties.”

The final rules also cover situations where payers have “downcoded” a claim. According to previous rulemaking, downcoding occurs when payers change service codes or change, add, or remove a modifier, which can lower the QPA for the service code or modifier billed by a provider.

The rules will create new requirements related to what information payers must share with providers when downcoding occurs. The information includes a statement that the service code or modifier was downcoded, an explanation of why the claim was downcoded, and the amount that would have been the QPA had the service code or modifier not been downcoded.

The Biden Administration—through the Departments of Labor, Health and Human Services, and Treasury, which officially released the final surprise billing rules—said that the rules “will help providers, facilities and air ambulance providers engage in more meaningful open negotiations with plans and issuers and will help inform the offers they submit to certified independent entities to resolve claim disputes.”

But whether the updated language is enough to tip the balance for providers remains to be seen. AHA said in a news release late last week that it is closely reviewing the final surprise billing rules.

Congress isn’t done with messy health care fights

https://www.axios.com/2022/08/17/congress-isnt-done-with-messy-health-care-fights

The Inflation Reduction Act is law. But that doesn’t mean major health care interests are done testing their lobbying clout. Many are already lining up for year-end relief from Medicare payment cuts, regulatory changes and inflation woes.

The big picture: Year-end spending bills often contain health care “extenders” that delay cuts to hospitals that treat the poorest patients or keep money flowing to community health centers. But lawmakers may be hard-pressed to justify the price tag this time, and are seeing an unusual assortment of appeals for help.

Background: 2% Medicare sequester cuts that had been paused by the pandemic took effect last month. Another 4% cut could come at year’s end, if lawmakers don’t delay it.

  • These automatic reductions in spending come amid health labor force shortages, supply chain problems and other pressures that are making providers jockey for relief.
  • It will fall to Congress to pick winners and losers among hospitals, physicians, home health care groups, nursing homes and ambulance services. And each says the consequences of not helping are dire.
  • “The core question is how do they come up with the money and how do they decide to prioritize who give it to?” said Raymond James analyst Chris Meekins.

Go deeper: Hospitals are pressing hard for relief from the year-end sequester, and want Congress to extend or make permanent programs that support rural facilities and are slated to expire on Sept. 30, absent legislative action.

  • The American Hospital Association has estimated its members will lose at least $3 billion by year’s end.
  • Hospitals in the government’s discount drug program also have to be made whole after the Supreme Court unanimously overturned a huge pay cut stemming from a 2018 rule. And the industry also is seeking to reverse a planned cuts to supplementary payments for uncompensated care.

Doctors and nursing homes are among the other players lining up for relief from sequester cuts, specific Medicare payment changes that affect their businesses or new regulations.

  • The American Medical Association says Medicare cuts could threaten physician practices that have been racked by pandemic-induced retirements and burnout. “This is really about allowing patients and Medicare beneficiaries to continue care,” AMA President Jack Resneck told Axios.
  • National Association for Home Care and Hospice President Bill Dombi said over half of the home health agencies will run deficits if lawmakers don’t act. “When you have that many providers in the red, you can foresee there will be negative consequences. They’re already rejecting 20 to 30% of referrals for admissions to care, so it will be affecting patients,” said Dombi.
  • Ambulance services are also struggling. “Ambulance providers around the country are at a very near breaking point as we kind of walk along the ledge leading to this cliff at the end of the calendar year,” Shawn Baird, president of the American Ambulance Association and chief operating officer of Metro West Ambulance in Oregon, told Axios.

The other side: Despite Congress’ willingness to delay payment cuts, there’s not enough money to make everyone happy. And concerns about Medicare program’s solvency that emerged during the lengthy debate over the Democrats’ tax, climate and health package could dampen lawmakers’ enthusiasm for costly fixes that favor one provider group.

  • The continuation of the COVID-19 public health emergency and its myriad temporary payment allowances could also lessen a sense of urgency around provider relief.

The bottom line: For all the dire warnings, it’s unlikely Congress will do much until December, when it will likely pass a continuing resolution or an omnibus spending bill and could then move to delay the 4% cut.

Inpatient payment increase not enough, AHA says

https://www.healthcarefinancenews.com/news/inpatient-payment-increase-not-enough-aha-says?mkt_tok=NDIwLVlOQS0yOTIAAAGGA2hNPoWk8cdzEHcBC5xk1t_79ltx5DUnzCdiUWpAvrtC-_vON29agi9pNZf0kUGl9cKeinq1FXBXdCEr_RCHDNPIsIG9WjhKw1KLwH8

Hospitals are forced to absorb inflationary expenses, particularly related to supporting their workforce, AHA says.

The Centers for Medicare and Medicaid Services’ increase in the inpatient payment rate for 2023 is welcome but not enough to offset expenses, according to the American Hospital Association.

CMS set a 4.1% market basket update for 2023 in its final rule released Monday, calling it the highest in the last 25 years. The increase was due to the higher cost in compensation for hospital workers.

The final rule gave inpatient hospitals a 4.3% increase for 2023, as opposed to the 3.2% increase in April’s proposed rule.

WHY THIS MATTERS

CMS used more recent data to calculate the market basket and disproportionate share hospital payments, a move that better reflects inflation and labor and supply cost pressures on hospitals, the AHA said.

“That said, this update still falls short of what hospitals and health systems need to continue to overcome the many challenges that threaten their ability to care for patients and provide essential services for their communities,” said AHA Executive Vice President Stacey Hughes. “This includes the extraordinary inflationary expenses in the cost of caring hospitals are being forced to absorb, particularly related to supporting their workforce while experiencing severe staff shortages.”

The AHA would continue to urge Congress to take action to support the hospital field, including by extending the low-volume adjustment and Medicare-dependent hospital programs, Hughes said.

In late July, Senate and House members urged CMS to increase the inpatient hospital payment.

Premier, which works with hospitals, also said the 4.3% payment update falls short of reflecting the rising labor costs that hospitals have experienced since the onset of the pandemic. 

“Coupled with record high inflation, this inadequate payment bump will only exacerbate the intense financial pressure on American hospitals,” said Soumi Saha, senior vice president of Government Affairs for Premier.

THE LARGER TREND

Recent studies show hospitals remain financially challenged since the COVID-19 pandemic’s effect on revenue and supply chain and labor expenses. Piled onto that has been inflation that has added to soaring expenses.

Hospital margins were up slightly from May to June, but are still significantly lower than pre-pandemic levels, according to a Flash Report from Kaufman Hall.

The effects of the pandemic on the healthcare industry have been profound, resulting in the creation of new business models, according to a report from McKinsey.

Transformational change is necessary as hospitals have been hit hard by eroding margins due to cost inflation and expenses, Fitch found.

Hospital group wants prompt payment of 340B funds after Supreme Court win

The American Hospital Association wants HHS to act quickly to ensure that affected hospitals receive withheld 340B program funds. 

The organization’s June 28 letter to HHS comes after the Supreme Court recently overturned a $1.6 billion 340B payment cut.

The case centered around whether CMS has the authority to make cuts to the program under its  Medicare Outpatient Prospective Payment System. Under the payment rule, HHS cut the reimbursement rate for covered drugs by 28.5 percent in 2018, but it later lowered the cut to 22.5 percent. The Supreme Court reversed a federal appeals court’s 2020 ruling that HHS had the authority to make the $1.6 billion annual reimbursement cut.  

“Given the vital role that 340B hospitals play in serving vulnerable communities, they should be repaid the funds that have been withheld from them without delay,” the American Hospital Association said in the letter. “They also should be paid for all of the years (2018-2022) in which the Centers for Medicare & Medicaid Services (CMS) illegally cut reimbursement rates.”

The hospital group said it is concerned that despite the Supreme Court’s decision, the resolution of these issues “could be bogged down in needless litigation, and that hospitals will not be appropriately compensated at a time when they are weathering significant financial challenges on many fronts.”

US Supreme Court overturns $1.6B 340B payment cut

The U.S. Supreme Court sided with hospital groups June 15 in a case challenging HHS’ 340B payment cuts. 

The case centered around whether CMS has the authority to make cuts to the program under its  Medicare Outpatient Prospective Payment System. Under the payment rule, HHS cut the reimbursement rate for covered drugs by 28.5 percent in 2018, but it later lowered the reimbursement rate cut to 22.5 percent. 

Under the 340B program, eligible hospitals can buy outpatient drugs at a discount. A hospital typically pays 20 percent to 50 percent below the average sales price for the drugs through the program. 

The Supreme Court reversed a federal appeals court’s 2020 ruling that HHS had the authority to make the $1.6 billion annual reimbursement cut.  

Justice Brett Kavanaugh, writing the opinion for the court’s unanimous decision, said that absent a survey of hospitals’ acquisition costs, HHS may not vary the reimbursement rate for 340B hospitals. 

“HHS’s 2018 and 2019 reimbursement rates for 340B hospitals were therefore contrary to the statute and unlawful,” he wrote. 
The American Hospital Association, Association of American Medical Colleges and America’s Essential Hospitals said in a joint statement emailed to Becker’s following the decision that they look forward to working with HHS and the courts to develop a plan to reimburse 340B hospitals affected by the cuts while ensuring other hospitals are not disadvantaged as they also continue to serve their communities.

Hospitals urge Justice Department to probe insurers over routine denials

The American Hospital Association, on behalf of its nearly 5,000 healthcare organizations, is urging the Justice Department to probe routine denials from commercial health insurance companies. 

Specifically, the AHA is asking the Justice Department to establish a task force to conduct False Claims Act investigations into the insurers that routinely deny payments to providers, according to a May 19 letter to the department. 

The request from the AHA comes after HHS’ Office of Inspector General released a report April 27 that found Medicare Advantage Organizations sometimes delayed or denied enrollees’ access to services although the provider’s prior authorization request met Medicare coverage rules. 

“It is time for the Department of Justice to exercise its False Claims Act authority to both punish those MAOs that have denied Medicare beneficiaries and their providers their rightful coverage and to deter future misdeeds,” the AHA said in a letter to the Justice Department. “This problem has grown so large — and has lasted for so long — that only the prospect of civil and criminal penalties can adequately prevent the widespread fraud certain MAOs are perpetrating against sick and elderly patients across the country.”

Read the full letter here.

RAND: Private plans paid hospitals 224% more than Medicare rates

https://www.fiercehealthcare.com/payers/rand-study-finds-private-plans-paid-hospitals-224-more-compared-medicare-rates

Private insurance plans paid hospitals on average 224% more compared with Medicare rates for both inpatient and outpatient services in 2020, a new study found. 

Researchers at RAND Corporation looked at data from 4,000 hospitals in 49 states from 2018 to 2020. While the 224% increase in rates is high, it is a slight reduction from the 247% reported in 2018 in the last study RAND performed. 

“This reduction is a result of a substantial increase in the volume of claims in the analysis from states with prices below the previous average price,” the study said. 

The report showed that plans in certain states wound up paying hospitals more than others. It found that Florida, West Virginia and South Carolina had prices that were at or even higher than 310% of Medicare

But other states like Hawaii, Arkansas and Washington paid less than 175% of Medicare rates. 

“Employers can use this report to become better-informed purchasers of health benefits,” study lead author Christopher Waley said in a statement. “The work also highlights the levels and variation in hospital prices paid by employers and private insurers, and thus may help policymakers who may be looking for strategies to curb healthcare spending.”

The data come as the federal government has explored ways to lower healthcare costs, including going toe-to-toe with the hospital industry. The Centers for Medicare & Medicaid Services (CMS) has in recent years sought to cut payments to off-campus outpatient clinics in order to bring Medicare payments in line with payments paid to physicians’ offices but has met with stiff legal and lobbying opposition from the hospital industry that argues the extra payments are needed.

CMS has also published regulations that call on hospitals to increase transparency of prices, including a rule that mandates hospitals publish online the prices for roughly 300 shoppable services.

The hospital industry pushed back against RAND’s findings, arguing that the study is based on incomplete data. The industry group American Hospital Association said researchers only looked at 2.2% of overall hospital spending, a small portion of overall expenses.

“Researchers should expect variation in the cost of delivering services across the wide range of U.S. hospitals – from rural critical access hospitals to large academic medical centers,” said AHA CEO Rick Pollack in a statement to Fierce Healthcare. “Tellingly, when RAND added more claims as compared to previous versions of this report, the average price for hospital services declined.”