Hospitals and MedPAC Disagree on Economic State of Hospitals

April 3, 2023

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In its March 2023 report to Congress, the Medicare Payment Advisory Commission (MedPAC) recommended adjusting the fee-for-service (FFS) base payment rate for acute care hospitals in 2024 by an amount equaling the current market basket rate plus 1 percent. MedPAC believes the pandemic-induced hospital burdens and costs are being largely offset by federal relief funds and increased Medicare payments. The effect of the recommendation if it were to be enacted would be to increase spending on acute care hospitals by approximately $2 billion in 2024 and by $10 billion over the next five years.

They made this recommendation based on:

  • According to MedPAC 2021 data, inpatient prospective payment system (IPPS) hospitals’ all-payer operating margins reached record highs and Medicare margins also increased.
  • Additionally, they noted the rate of hospital closures matched the rate of hospital openings.

However, the hospital sector does not agree with the MedPAC conclusions about the economic state of hospitals. Hospitals argue that they continue to struggle with maintaining an adequate workforce, and persistent inflation has led to rising operating costs, particularly in relation to drug price increases and supply chain shortages. The American Hospital Association stated that the data MedPAC relied on is limited in scope because it consists of cost reports that pinpoint specific margin levels for certain parts of the year, disregarding expense surges and increases that can occur at different times for different hospitals.