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Make No Mistake: Hospitals Are a Long Way From ‘Fine’

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Last week, the independent agency that advises Congress on Medicare rates delivered its March report, which describes hospital profit margins that hit all-time highs in 2021 and calls attention to the $200 billion in taxpayer subsidies that provided hospitals with a cushion to get through the worst of the pandemic. 

“In other words, the federal relief funds that hospitals received in 2021 more than offset the additional coronavirus pandemic–related expenses that were not covered by the higher patient revenues associated with COVID-19,” officials with the Medicare Payment Advisory Commission wrote. 

An independent researcher who reviewed MedPAC’s report offered that: “Hospitals are doing fine … the world didn’t end. Things are moving as they should be.” 

Nothing could be further from the truth. And patients are at risk every day. 

California started the year with one fewer hospital, leaving tens of thousands of Madera County residents with no hospital services whatsoever. Early estimates show that dozens more California hospitals are at risk of closure. 

The challenges are well-documented. Expenses — including skyrocketing labor costs — are rising far faster than payments. Government payers — Medicare and Medi-Cal — are the primary driver of this gap, as California pays just 74 cents for every dollar it costs to care for Medi-Cal patients and the federal government pays just a penny more for Medicare patients.  

Only the state and federal governments can adjust those rates to account for the shortfall. 

The data in MedPAC’s report are from 2021, which included federal COVID-19 relief funding that over two years covered only 40% of California hospitals’ losses and has since evaporated. During deliberations on this issue, MedPAC commissioners expressed significant concern for hospitals’ welfare, leading to an unprecedented recommendation to increase Medicare payments by one percentage point over the market basket. 

Even if Congress provided that additional support, hospitals in California — and nationwide — would remain on the edge of a cliff. In California, half of all hospitals finished 2022 with negative margins and nationally all three bond ratings agencies — Moody’s, Fitch, and S&P — have a negative outlook on the hospital sector.  

Until the field can be stabilized, California patients and communities will experience a deteriorating health care system that leads to longer emergency department wait times, farther distances to travel for care, and “care deserts” for services like maternity care and behavioral health. 

CHA will continue to press for even more than the 2.9% payment increase for inpatient services that the Centers for Medicare & Medicaid Services is expected to propose and for immediate state help for hospitals that are taking a step closer to the cliff’s edge every day.