Increasing hospital costs
| | |

Analysis: Hospitals Experienced Higher Costs and Insufficient Compensation in 2023

According to the latest report from the American Hospital Association (AHA), hospitals and health systems in America are facing increasing operational costs and economic pressures. The report outlines the impact of labor, drug, and administrative expenses on care delivery in 2023 and provides insights into what hospitals can anticipate in 2024.

According to the report, inflation across the economy saw an increase of 12.4% from 2021 to 2023, while the growth in Inpatient Prospective Payment System (IPPS) reimbursement was only 5.2%. The AHA also stated that hospitals and health systems have experienced a 28.3% decrease in the number of days they have cash on hand since the beginning of 2022. These conditions create challenges for organizations in acquiring supplies and implementing advanced technologies to enhance healthcare.

In 2023, the AHA addressed the issue of reimbursements for specific services consistently being lower than their actual costs. This was evident in the fact that payments for inpatient behavioral health services were, on average, 34.3% lower than their costs across all payers.

The AHA referenced a study conducted by Premier which revealed that hospitals are facing a significant financial burden due to the rising number of denials and other practices implemented by commercial payers, resulting in increased administrative costs totaling to around $20 billion annually.

The report stated that between 2021 and 2023, there was a rise of $42.5 billion in labor costs, bringing the total to $839 billion. According to the AHA, these costs make up around 60% of the average hospital’s budget. In addition, medical supply expenses, which make up approximately 10.5% of the average hospital’s budget, saw an increase of $6.6 billion between 2022 and 2023, reaching a total of $146.9 billion.

According to the report, hospitals had a drug expense of $115 billion in 2023, which was partly due to drug companies raising the prices of numerous existing drugs. Additionally, the median yearly list price for new drugs rose by 35% to reach $300,000 in 2023. As a result of these heightened expenses, healthcare organizations had to face the challenge of dealing with unprecedented drug shortages.

According to the AHA, hospitals are anticipated to experience a rise in labor, drug, and administrative costs in 2024. In order to ensure hospitals are equipped with the necessary resources to offer round-the-clock care to patients, the AHA urged CMS and Congress to take the following actions:

  • Oppose any reductions to hospital care under Medicare and Medicaid, including proposals that seek to equalize payment rates and upcoming decreases for Medicaid disproportionate share hospitals.
  • Advocate for the improvement and reinforcement of the healthcare workforce.
  • Safeguard the 340B drug pricing program from any detrimental modifications and mitigate the rising costs of medication.
  • Implement measures to hold commercial insurance companies responsible for practices that impede timely and accessible care.
  • Strengthen efforts to fortify cybersecurity measures for hospitals and the entire healthcare system.

Every healthcare provider or facility is facing significant challenges with billing due to insufficient coverage payments and reduced reimbursements. The time to act is now! Contact us to learn how we can help you transform your billing process and maximize your reimbursements, ensuring a turnaround before the end of the year.