Hospitals' financial fortunes have taken a turn for the worse in recent weeks, thanks to less-than-favorable Medicare policies and rising labor and supply costs.
Why it matters: Hospitals are by far the largest driver of U.S. health care spending, and critics have argued for years that Washington is reluctant to take on the powerful industry. But the crunch that hospitals now face may have unintended effects on patient care, and will be hard for rural and safety net hospitals to weather.
Driving the news: Many hospitals are facing pandemic-fueled staffing shortages and surging labor costs as they turn to more contract staff and travel nurses.
- The industry couldn't persuade Congress to pause a scheduled 2% cut in Medicare payments, then was frustrated by a Medicare payment proposal for 2023 that it says ignores the effects of inflation, labor and supply cost pressures.
- Total hospital expenses were up 11% compared to pre-pandemic levels in 2019, according to Kaufman Hall, a consulting firm that tracks hospital metrics.
- The American Hospital Association says more than 33% of facilities are operating on negative margins.
- "Regardless of potential new surges of COVID-19, hospitals and health systems continue to face workforce retention and recruitment challenges, supply chain disruptions and exorbitant expenses," the AHA said
Yes, but: Some of the industry's biggest names continue to thrive: Tenet Healthcare posted first quarter revenue of $4.75 billion, buoyed by ambulatory surgery centers that capture a shift in hospital procedures to outpatient settings.
- HCA Healthcare's first-quarter revenues rose to nearly $15 billion on higher year-over-year admissions.
Background: The federal government extended financial support for hospitals and other health care providers to compensate for revenue losses and COVID-related costs, including $178 billion from provider relief funds and $100 billion from Paycheck Protection Program loans, per the University of North Carolina Sheps Center for Health Services Research.
Between the lines: Sympathy may be limited for an industry that recently received large sums of federal dollars to weather the pandemic, especially amid headlines about higher-than-expected earnings.
Zoom in: The aid was just a temporary lifeline for some facilities, especially those in outlying areas, whose staffing, limited capacity and finances were already being stretched before COVID-19.
- The 2% cut in Medicare payments could result in a $228.5 million hit and the loss of 2,800 jobs at rural facilities, per the National Rural Health Association.
- "There is a convergence of multiple pressures points impacting the viability of rural community hospitals," said Carrie Cochran-McClain, the group's chief policy officer.
Where it stands: Leading hospital industry lobbies are pressing Congress to reverse the Medicare cuts and provide more COVID relief — a prospect some analysts view as unlikely.
- Hospitals could offset the reduced government payments by charging privately insured patients more, through rate increases in contract negotiations with commercial payers.
- Michael Newshel, an analyst for Evercore ISI, said even if successful, the industry will face a lag to catch up to costs, since existing contracts are multi-year. And there will be continued financial pressure as contracts roll over.
