A 2.6% Payment Hike For Inpatient Hospitals: CMS Suggests


The Biden administration is looking forward to hiking Medicare payments when it comes to inpatient care at hospitals by 2.6% in 2025, as per a rule that’s proposed on April 10.

The fact is that it is the lowest proposed rate ever since 2019, and that too below both the 2.8% surge in the CMS proposed for 2024 as well as the 3.1% hike that the regulators eventually finalized, as per Gary Taylor, the TD Cowen analyst. The fact is that it should still raise hospital payments by $3.2 billion, said the CMS.

Apparently, the hospital groups in the US decried the surge in the rate as insufficient in order to cover the rising costs when it comes to delivering care and went on to take issue with policies that could as well lower payments for the long-term care facilities.

It is well to be noted that the proposed payment rate happens to reflect a 3% surge to the market basket, which is an index that is meant to go ahead and also quantify changes in the prices of hospital goods as well as services, that got reduced by a 0.4% productivity adjustment.

Still, rates can as well increase in the final rule, which comes in August 2024. Historically, regulators have raised the rates after stakeholder’s lodge complaints pertaining to the proposal throughout the public comment period. Industry groups happen to be already lobbying for the CMS in order to hike payments, with the argument that the proposal is indeed not enough to enable the hospitals to function amid persistent inflation as well as labor costs.

The 2.6% update is indeed woefully not adequate, specifically following the years of high inflation along with the rising costs for labor, drugs and even equipment, remarks Ashley Thompson, senior vice president, public policy analysis and development at American Hospital Association.

It happens to be a perennial argument that hospitals make use of when vying for higher reimbursement from the government, and one that goes on to hold true for a number of small as well as rural hospitals. But there are major hospital operators that have notched high profit margins in recent years, and that too even during the pandemic, thanks to the generous federal aid as well as the more recent ones from the returning patient volume along with some strong investment returns.

Calvin Sternick, one of the J.P. Morgan analysts, said in an April 10 note that though the increase happens to be quite lower compared to recent years, they would note that the 2025 rate still happens to sit towards the higher end of historical rate surges, which generally go on to range between 1% and 3%.

In the past few years, pricing growth when it comes to hospitals has indeed lagged behind the elevated levels in terms of wage inflation, since the hospitals jockeyed for employees in a labor market that remained quite tight. Yet, industry-wide hospital wages have indeed fallen throughout the past year, as per Brian Tanquilut, one of Jefferies’ analysts.

As such, the rule happens to be laying a solid foundation when it comes to hospitals going ahead and maintaining margins given that wage inflation happens to be tracking in a similar range, said Tanquilut in a note.

In total, the for-profit facilities are all set to receive a 2.6% payment update in 2025 if the rule happens to be finalized as proposed. Nonprofit hospitals will go on to get a 2.3% bump.

Hospital groups were also up in arms pertaining to the payment changes in terms of long-term care hospitals that care for complex patients who require extended stays.

The CMS went on to propose a 2.8% rise to the standard federal payment rate for such kind of facilities. But the payments to long-term care hospitals were expected to rise 1.6%, or $41 million, post-adjusting for a forecasted decrease in high-cost outlier payments in 2025.

Regulators went ahead and even proposed increasing the long-term care hospital outlier threshold by an extraordinary amount, Thompson from the AHA said. The outlier threshold happens to be how much the costs of treating a patient must exceed hospital payments in order to qualify for additional reimbursement.

The changes would go on to result in an extra $31,048 loss per patient for facilities, exacerbating functional concerns for the hospitals and also putting more pressure on short-term acute care facilities as well as their intensive care units, said Thompson.

Payments so as to disproportionately share hospitals that go ahead and serve high numbers of low-income patients would see a surge of $560 million when it comes to the proposed rule.

This is as much as a drop of $957 million for 2024, after the regulators go on to forecast that the uninsured rate would see a dip due to pandemic-era coverage gains, in spite of the Medicaid redeterminations throwing millions of Americans off the coverage.

It is well to be noted that the CMS also went ahead and proposed hospitals create a permanent data reporting structure in terms of COVID-19 as well as other respiratory viruses such as flu and RSV. The dearth of a standardized process hamstrung the public health agencies’ capacity to get a handle on COVID-19 in the pandemic’s early days.

The rule in a way would also require long-term care facilities to go ahead and report social determinants pertaining to health data, such as housing and food stability, so as to account for the resources needed to care for homeless individuals. It would as well increase technology payments to go ahead and help enhance access to gene therapy when it comes to sickle cell disease, and also create a varied payment to small independent hospitals so as to create a buffer stock of necessary medicines.