Hospital Cost Pressures Rise; Medicare Advantage Reimbursement Challenges Increase

A recent American Hospital Association (AHA) report highlights that hospital costs are rising faster than inflation, driven primarily by escalating labor expenses that represent more than half of hospital costs. Despite some health systems reporting modest financial improvements, hospitals face increasing economic pressures due to inadequate federal reimbursements, particularly from Medicare and Medicaid programs, which do not keep pace with their growing expenses.

The report identifies growing difficulties in interactions with Medicare Advantage plans, noting that hospitals experience longer patient observation periods without equivalent reimbursement, contributing to extended hospital stays. Medicare Advantage patients tend to have considerably longer observation and discharge delays compared to those on traditional Medicare, leading to increased operational and financial stress on hospitals.

Additionally, hospitals face discharge bottlenecks due to delays in transferring patients to post-acute care facilities, often driven by insufficient capacity and prior authorization hurdles imposed by insurers. These delays exacerbate hospital stay lengths and strain resources, further complicating care management for chronic conditions that increase hospital visits, such as heart failure and diabetes.

The report underscores the significant underpayments hospitals absorb from Medicare and Medicaid programs, amounting to $130 billion in 2023 alone. These reimbursement challenges are compounded by rising labor and supply costs, forcing some hospitals to defer facility upgrades and maintenance, reflected in the aging hospital infrastructure.

In the policy arena, potential federal cuts to Medicaid and tariffs on medical devices sourced internationally add uncertainty to hospital budgeting and operations. Policymakers are urged to consider the cumulative impact of rising costs, reimbursement inadequacies, and insurer practices on the sustainability of hospital care access.

The evolving cost pressures coincide with increased regulatory focus on price transparency, prompted by executive orders requiring hospitals to facilitate consumer price comparisons. This mandates hospitals to balance transparency with operational cost management amid continuing financial headwinds.

Overall, the AHA report serves as a comprehensive overview of the financial challenges facing U.S. hospitals, emphasizing the need for policy interventions to preserve care quality and access while addressing systemic reimbursement and insurer-related issues.