Labor Cost Management

News Briefs: Hospital labor costs rose by almost 40% between 2019 and early 2022

May 27, 2022 9:26 pm

A new report quantifies the astounding surge in hospital labor costs during the first two years of the COVID-19 pandemic.

Labor expenses increased from $4,009 to $5,494 per adjusted discharge between 2019 and March 2022, according to a report released May 11 by Kaufman Hall. That represents a 37% jump.

The spike was driven by contract labor, which rose from 2% of total labor expenses to 11% during the time period. Median hourly wages for contract nurses rose by 106%, compared with 11% for employed nurses.

For the first three months of 2022, median labor expenses were highest in the West and Northeast/Mid-Atlantic, exceeding $7,000 per adjusted discharge (compared with under $5,000 in the South). But all regions experienced substantial increases relative to 2019, led by the South (43%) and West (42%).

“Skyrocketing labor costs, decreasing patient volume and lower revenues create a perfect storm for steep declines in profit margins,” Erik Swanson, senior vice president of data and analytics at Kaufman Hall, said in a news release. “Hospitals now face a number of pressures to attract and retain affordable clinical staff, maintain patient safety, deliver quality services and increase their efficiency.”

Medicare’s proposed increase for inpatient payments doesn’t meet hospitals’ expectations

Medicare’s FY23 proposed rule for inpatient payments will leave hospitals and health systems in a tough spot financially, advocates said.

The Federation of American Hospitals described the payment update as “woefully inadequate.”

CMS released the rule April 18, proposing a 3.2% payment increase for hospitals that meet quality-reporting requirements and fulfill the criteria to be designated as meaningful users of electronic health records. The payment boost stems from a projected market-basket increase of 3.1% and statutory adjustments that result in a net gain of 0.1%.

While CMS estimates that the payment increase will total $1.6 billion in aggregate, it also projects a decrease of $800 million in Medicare disproportionate share hospital and uncompensated care payments, and another $800 million reduction in new-technology add-on payments.

In addition, CMS anticipates a $600 million decrease for hospitals categorized as Medicare-dependent or low-volume, barring legislation to extend those payments.

OIG calls out improper denials of payment and services in MA

Medicare Advantage (MA) processes related to prior authorization can end up restricting beneficiaries’ access to medically necessary care, according to a new report from the Office of Inspector General (OIG) at the U.S. Department of Health and Human Services.

OIG conducted the investigation by examining a collection of 250 denials of prior authorization requests and 250 payment denials issued by 15 large MA health plans during a seven-day period in June 2019.

In numerous instances, the MA plans “denied beneficiaries’ access to services, even though the requests met Medicare coverage rules,” the report states.

Specifically, among the prior authorization denials in the study sample, 13% met Medicare coverage rules and thus would have been covered in Medicare fee-for-service.

OIG also found that 18% of payment denials met Medicare coverage rules and health plan billing rules. Many such denials were the result of errors during manual or system claims processing.

Healthcare organizations urge HHS to continue the PHE

Sixteen national healthcare organizations wrote to the U.S. Department of Health and Human Services (HHS) on May 10 to request that the public health emergency (PHE) be extended past its current expiration date.

Despite the lack of a formal announcement, the organizations appear to have gotten their wish. The PHE is set to expire July 15, but HHS in May reiterated that it would provide at least 60 days of notice before terminating the declaration. No such notice had been issued when hfm went to press.

“The numerous flexibilities provided under the PHE have allowed for regulatory waivers and flexibilities that have proven vital in safely caring for patients and critical in enabling the country’s healthcare system to quickly adapt and tackle COVID-19 and its variants,” the organizations wrote.

Arguably the biggest concern about the end of the PHE is the impact on Medicaid eligibility. With the expiration of continuous-enrollment provisions, at least 5.3 million people are expected to lose Medicaid coverage, according to an analysis by the Kaiser Family Foundation. The number could surpass 14 million.

CMS looks to alleviate ‘volatility’ in the Medicare wage index

CMS is seeking to stabilize wage metrics for acute care hospitals by incorporating a permanent cap that would prevent any facility’s wage index from decreasing by more than 5% year over year. Such caps have been in effect for the past several years as well but were considered transitional.

The permanent mechanism is designed “to reduce overall volatility for hospitals,” CMS stated in the FY23 proposed rule for hospital inpatient payments. However, advocacy groups expressed disappointment that it will be implemented on a budget-neutral basis, meaning any increase in total Medicare payments stemming from the cap will be negated via a decrease to the annual rate update.

For FY23 and ensuing years, CMS estimates that the cap’s budget-neutrality impact would be “minimal.”

Health plans in the ACA marketplaces face new network adequacy rules

The 2023 final rule for health plans operating in the Affordable Care Act (ACA) insurance marketplaces includes new standards for provider networks.

In states with federally facilitated marketplaces, the U.S. Department of Health and Human Services (HHS) will evaluate health plans for compliance with network adequacy standards based on time-and-distance criteria. Exceptions can apply to states that perform their own reviews if those reviews use standards that are at least as stringent as the federal guidelines.

In 2024, the criteria will be expanded to include appointment wait times for behavioral healthcare, routine primary care and nonurgent specialty care. That provision was proposed for 2023, but HHS delayed implementation in response to stakeholder comments. Telehealth-only providers will not be counted in assessments of appointment wait times.


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