Now is not the time for Congress to further cut hospitals’ Medicare payments

As the U.S. slowly emerges from the Covid-19 pandemic, hospitals hope to get back to some semblance of normal. That won’t be possible with the 1% cut in reimbursement rates from the Centers for Medicare and Medicaid Services (CMS) that is slated to go into effect July 1, which comes on the heels of a 1% cut in Medicare payments implemented in April. And these are in addition to an annual cut that CMS put in place with the Affordable Care Act to incentivize hospital productivity.

Hospitals are being pummeled by both statute and regulation.

Hospitals and health care workers were the heart and soul of the U.S. response to the public health emergency of Covid-19, and they’re continuing to help the U.S. safely navigate a new reality as the pandemic enters a new phase.

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Yet two-plus years of the pandemic have taken their toll. In a recent survey, almost half of U.S. clinicians said they were planning to leave their jobs in the next two to three years, with 40% saying they’re planning to leave the profession entirely. According to The Advisory Board, the vacancy rate of bedside registered nurses doubled in 2021, reaching 12%. As a result, nurses are now caring for more hospital patients than they normally do, stretching their capabilities to the breaking point.

Workforce shortages are also at critical levels across myriad positions in U.S. hospitals, including hospitalists, intensivists, lab technicians, nursing assistants, and environmental service workers. In some cases, these shortages are leading to delays in patients getting needed care. As a result, patient harm — as defined by things like falls and infections — has increased dramatically during the pandemic. The New England Journal of Medicine, for example, has published data showing pressure injures up almost 42%.

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Hospitals are also suffering financially. According to KaufmanHall’s May 2022 Flash Report, total expenses are up compared to 2020, with labor costs specifically up 26%. Rampant inflation is also driving financial turmoil at hospitals. Supply-chain challenges, which have affected many industries, have driven up supply-related expenses in health care by more than 50% since 2020. And unlike the supply-chain challenges currently at play at the gas pump, hospitals have no ability to simply increase prices at will.

A majority of payments to hospitals and health systems are non-negotiable fixed rates governed by CMS. The bottom line? While other industries are passing along higher costs through price increases, health care not only cannot do that but is facing cuts by its single largest payer.

The financial picture for many American hospitals is grim: most are losing money. “The median change in [the operating earnings before interest, taxes, depreciation, and amortization] margin decreased 26.8% month-over-month, and 51.5% from April 2021,” according to the KaufmanHall report. This is not sustainable, and threatens hospitals’ vital life-saving mission.

The challenges facing health care workers and hospitals in the wake of the continuing Covid-19 pandemic remain considerable — and continue to grow. So we and many of our colleagues working in hospitals are puzzled that Congress has not changed course and communicated that it will continue to pause so-called sequestration cuts. Under the Budget Control Act of 2011, across-the-board cuts go into effect if Congress has not met specific spending targets — targets it currently has not met. Because of this, Medicare payments to reimburse hospitals for the care they provide are currently on track to be cut another 1% effective July 1.

Health care is at a pivotal and precarious moment. Doctors, nurses, and other health care workers, along with the hospitals and health care systems they work in, just want to do their jobs and care for patients to the best of their ability. But top-notch patient care, as well as the research to make it even better, requires intensive capital investment and a positive operating margin.

If implemented, the additional CMS sequestration cut will undermine hospitals’ financial foundation, forcing them to put off needed investments, and patients will pay the consequences.

Who knows what the opportunity cost of this reduction in Medicare payments might be if an innovative program that improves patients’ quality of life is delayed or a breakthrough treatment is not discovered?

We urge Congress to stop the July 1 cut and delay it until after the Covid-19 public health emergency has ended, or until Dec. 31, 2022, whichever is later. If no action is taken, hundreds of millions of dollars will be cut from hospitals and health systems at a time of spiraling costs — a time when they can least afford to be weakened. Instead, Congress should support hospitals and health care workers — those “health care heroes” who have shined so brightly these past two years and who provide the care communities and policymakers rely on.

Cliff A. Megerian is an ear, nose and throat physician; chief executive officer of University Hospitals Health System in Cleveland; and a professor of otolaryngology, head and neck surgery at Case Western Reserve University. Peter J. Pronovost is a critical care physician; chief quality and clinical transformation officer at University Hospitals Health System; and a professor of anesthesiology and critical care medicine at Case Western Reserve University.