Perspective: Climbing Costs and Rising Inflation Challenge Hospitals’ Ability to Provide Care

Yesterday, our country surpassed a grim and somber milestone: 1 million COVID-19 deaths in the U.S..

America’s hospitals and health systems — and their physicians, nurses, caregivers and teams — have been on the front lines since the beginning of the pandemic doing everything they can to care for patients, save lives and protect their communities.

While we all hope that we are entering the homestretch of the pandemic, we know we are not at the finish line yet. COVID-19 cases are rising again in many states, and the White House recently warned that the U.S. could see 100 million COVID-19 infections this fall and winter if additional funding for COVID-19 preparedness is not secured.

As hospitals continue to contend with COVID-19 challenges, they also are facing a tsunami of financial challenges that are exerting tremendous pressure on their ability provide care.

A new AHA report highlights the significant increase in costs of labor, drugs, supplies and equipment — all of which come on top of the impact of skyrocketing economy-wide inflation that is at a 40-year high.

Some key findings of the report show:

• Labor expenses, which for most hospitals account for more than 50% of their total expenses, per patient increased 19% through 2021 compared to 2019.
• Average hospital drug expenses by the end of 2021 were 28% higher than pre-pandemic levels and 37% higher per patient.
• Medical supply expenses jumped by 20.6% per patient through the end of 2021 compared to pre-pandemic levels, in large part due to global supply chain issues.

Meanwhile, Medicare and Medicaid, which account for more than 60% of all care provided by hospitals, reimburse hospitals less than the cost of providing care and their reimbursement rates are non-negotiable. The Medicare Payment Advisory Commission found that hospitals experienced a -8.5% margin on Medicare services in 2020, and it projects that margin will fall to -9% in 2022. Combined underpayments from Medicare and Medicaid to hospitals were $100 billion in 2020, up from $76 billion in 2019.

Taken together, these challenges threaten access to care for patients and communities in the short term and are unsustainable for the long term.

To address some of the immediate needs related to the challenges exacerbated by COVID-19, we continue to urge Congress to reverse harmful Medicare cuts to providers. A 1% Medicare sequester cut resumed April 1, and that cut will increase to 2% on July 1 without additional congressional action. We also are urging Congress to replenish the Provider Relief Fund; grant flexibility on accelerated and advance Medicare repayments; and extend or make permanent critical waivers that have improved patient care. You can urge your senators and representatives to support these important priorities by sending them a message here.

Ensuring the financial stability of hospitals and health systems also is one of AHA’s five strategic priorities in our 2022-2024 strategic plan, and a number of efforts are underway on this front.

Hospitals and health systems are the cornerstones of their communities, and patients depend on them for access to care 24 hours a day, seven days a week. This has never been clearer than during the past two years of the pandemic. We must make sure hospitals have the resources — today, tomorrow and in the future — to lead and support our efforts to advance health in America.