Federal Hospital Reimbursement to Take $252B Hit by 2029

Twelve legislative acts, as well as regulatory changes from CMS, are estimated to reduce federal hospital reimbursement by $252.6 billion by 2029, a new report from the health economics consulting firm Dobson | DaVanzo and Associates showed. 

The study, which was commissioned by the Federation of American Hospitals (FAH) and the American Hospital Association (AHA), examined how 12 legislative Acts combined with numerous regulatory changes would affect hospital funding between 2010 and 2029.

“Hospitals are nearing the tipping point we have predicted for so long. The disruptions that come with Medicare and Medicaid cuts of this magnitude have a real-world impact on our ability to deliver the vital services to the patients and local communities that depend on us,” Rick Pollack, AHA president and CEO explained in a blogpost. 

Implementation of sequestration and MS-DRG documentation and coding will prove to be the two most significant components of hospital reimbursement reductions, with only a decimal difference, for a total reduction of $85.8 billion and $85.7 billion respectively between 2010 and 2029. 

CMS asserted that implementation of the MS-DRGs eventually resulted in a 5.4 percent increase in the base payment rate due to improvements in documentation and coding. However, the analysis conducted by the hospital industry estimated that the documentation and coding increase was just 3.5 percent.

This total difference of 1.9 percent represents a permanent payment reduction to hospitals, which the hospital industry believes inappropriately reduces Medicare payments to hospitals by $46.2 billion over the 2013 through 2029 period. 

“As the cuts pile up, we urge policymakers to understand there comes a point where enough is enough. For the sake of our patients we need to stop this troubling trend,” Chip Kahn, FAH President and CEO stressed in the blogpost. 

As for sequestration, Medicare reimbursement reductions started under the Budget Control Act of 2011, which required an across-the-board reduction of $1.2 trillion in federal spending over a ten-year period. Under the act, a two percent reduction in Medicare occurred. 

According to the report, the Bipartisan Budget Act has extended sequestration numerous times under the original 2013 Bipartisan Budget Act, Military Retiree COLA Restoration Bill (S.25) of 2014, Bipartisan Budget Act of 2015, and Bipartisan Budget Act of 2018.

Most recently, the Bipartisan Budget Act of 2019 extended mandatory sequestration for an additional two years, through the 2029 fiscal year. 

As of June 2018, the estimation of reduced hospital payments was a total of $218.2 billion by 2028, according to a report. 

“$218 billion is not just a number, the funding reductions it reflects have real world consequences for patients. Losses of this significance simply cannot be sustained and will affect the ability of hospitals to meet the expectations of the patients and communities we serve,” explained Chip Kahn.  

As opposed to this year with sequestration driving hospital payment reductions above MS-DRGs, an AHA analysis from 2018 showed MS-DRG implementation having the most significant impact on hospital payments, with a total reduction of $79.3 billion between 2012 and 2028. 

Other laws and policies reducing federal hospital reimbursement by over $252 billion by 2029 included:

• Medicaid Disproportionate Share Hospital Payment reductions, $25.6 billion
• Off-campus provider-based department payment cuts, $23.7 billion
• Long-term care hospital cuts, $8.1 billion
• Post-acute care payment updates, $7.3 billion
• Hospital transfer policy, $6.2 billion
• Medicare payment cuts for bad debt, $5.7 billion
• 3-day window, $4.2 billion

These billions of dollars in cuts spell trouble for hospitals and health systems, as many struggle with declining reimbursements for service providers. But similar to Kahn, Pollack believes enough is enough with the report revealing “very serious challenges to ensure access to care.” He continues to be hopeful about the future of healthcare. 

“Hospitals and health systems are doing more to meet the needs of patients and communities than ever before,” he stated. “They not only work to ensure the highest quality care in delivering essential public services, but also address the social determinants of health, community, violence, and ensure they are always there and ready to care in the case of any emergency.”