Hospitals face a significant financial challenge as Medicare and Medicaid payments often fall below the actual cost of care, forcing them to shift costs to private insurers (the “hidden tax”) or operate at a loss.
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1. Medicare and Medicaid Reimbursement
The core issue is that Medicare often reimburses hospitals at a rate well below what they spend, sometimes only 82-83 cents for every dollar of care provided.
- Payment Updates: Hospital groups advocate for legislative action to ensure Medicare inpatient and outpatient payment updates keep pace with medical inflation and the rising costs of labor, drugs, and supplies. When hospital input costs rise faster than Medicare payment rates, it amounts to an effective payment cut.
- Preventing Sequester Cuts: Policymakers are urged to suspend or evaluate across-the-board cuts to Medicare payments, such as the PAYGO sequester, which can further reduce reimbursement rates.
- Support for Vulnerable Hospitals: Policies aim to make permanent or extend programs critical for rural and safety-net hospitals, such as the Low-Volume Adjustment and Medicare-Dependent Hospital programs, which provide essential supplemental funding.
- Medicaid Rate Alignment: Some new federal rules allow states to direct Medicaid managed care plans to pay providers at rates up to those of commercial plans or Medicare (the Average Commercial Rate, or ACR). This is a major change intended to increase the number of providers willing to accept Medicaid patients, particularly for certain high-need services.
2. Reducing Administrative Burden
Hospitals spend billions complying with complex administrative rules, which diverts resources from patient care.
- Prior Authorization Reform: Legislation is focused on holding Medicare Advantage (MA) plans and commercial insurers accountable for their use of prior authorization. Proposals include streamlining processes, requiring electronic prior authorization, and setting strict timelines for approvals to reduce payment delays and denials.
- Permanent Telehealth Flexibilities: Advocating to make permanent the temporary pandemic-era waivers that expanded telehealth access and reimbursement, which can improve efficiency and reduce the need for in-person, costly hospital visits.
- Site-Neutral Payments: A policy push to align payment rates for certain services across different settings (e.g., hospital outpatient departments vs. physician offices), which can reduce the incentive for expensive care settings, but is often opposed by hospitals due to lost revenue.
3. Cost and Price Transparency
- Price Transparency Enforcement: Policy mandates require hospitals to publish more comprehensive and understandable price information, though there is ongoing debate about how effectively this informs consumer choice and lowers overall costs.
- Supply Chain Tariffs: Hospital advocates call for exceptions or removal of tariffs on essential medical devices and supplies, as these tariffs significantly increase hospital operating expenses.
