The American Hospital Association has issued a Costs of Caring Report showing increased costs to hospitals and health systems coupled with inadequate payer reimbursement creating “an environment of financial uncertainty where many hospitals and health systems are operating with little or no margin.”
Among the highlights of the Report are the following:
- Hospitals’ labor costs, which on average account for 60% of a hospital’s budget, increased by more than $42.5 billion between 2021 and 2023.
- Overall inflation grew by 12.4% between 2021 and 2023 whereas Medicare reimbursement for inpatient care grew by only 5.2%.
- Hospitals experienced significant underpayment by all payers for essential services, with payments for inpatient behavioral health services 34% below costs and payments for outpatient burn and wound services 43% below costs.
- Commercial health insurance and Medicare Advantage plan practices, such as prior authorization and automated denials, have increased the administrative burden on hospitals.
The Report provided statistics and graphs depicting the increased costs of providing essential services, increased hospital administration expenses, increased expenses for drugs, increased supply costs, and increased labor costs.
One particular area of focus of the Report was on the inadequate reimbursements and increased administrative burden of providing care to patients with commercial insurance and Medicare Advantage plans. For example, the Report referred to a 2021 McKinsey study that estimated that hospitals spent $10 billion annually on prior authorization requests. With respect to Medicare Advantage plans, the Report stated:
Denials issued by commercial MA plans rose sharply by 55.7% in 2023. Notably,
many of these denials were ultimately overturned, consistent with a study by the
Department of Health and Human Services’ (HHS) Office of Inspector General (OIG)
that found 75% of care denials were subsequently overturned. These denials are
particularly concerning because they often occur for medically necessary care, which
can result in direct patient harm. In fact, a recent HHS OIG report found that nearly
one in five MA denials met Medicare coverage rules, which meant that had they been
paid via Medicare fee-for-service, they would have been paid without denial. Even
when denials are ultimately overturned, hospitals are not paid for the costs incurred to
navigate the burdensome and resource-intensive process. Making matters worse, MA
plans paid hospitals less than 90% of Medicare rates despite costing taxpayers more than
traditional Medicare in 2023.
Report at 4, citations omitted.
Unfortunately, the attorneys at Whatley Kallas, LLP have likewise found that the commercial payers and Medicare Advantage plans, are regularly denying and underpaying providers’ claims for medically necessary care. We are pursuing claims on behalf of providers against commercial insurers and Medicare Advantage plans.
The AHA’s Cost of Caring Report is linked here.