After two years on the frontlines in the battle against this pandemic, hospitals and health systems have seen a dramatic rise in costs of labor, drugs, supplies and equipment. All of this, which comes on top of the impact of skyrocketing economy-wide inflation that is at a 40-year high, continues to put enormous pressure on our ability to provide care.
Labor expenses, which account for more than 50% of hospitals’ total expenses, per patient increased 19% through 2021 compared to 2019 levels. And, average hospital drug expenses by the end of 2021 were 28% higher than pre-pandemic levels and 37% higher per patient. In addition, people put off care during the pandemic, coming to the hospital sicker and requiring more resources.
A recent Wall Street Journal article ignored these critical factors, while also failing to examine the role that commercial health insurers play in health care spending. Commercial insurance companies have historically been reluctant to pass lower costs on to consumers in the form of reduced premiums. That problem was laid bare when the Department of Justice challenged the attempted merger of Cigna with Anthem.
In addition, it is important to stress that both Medicare and Medicaid, which account for more than 60% of all care provided by hospitals, reimburse hospitals less than the cost of providing care and their reimbursement rates are non-negotiable. Even the Medicare Payment Advisory Commission (MedPAC) recognizes that Medicare underpays. MedPAC found that hospitals experienced a -8.5% margin on Medicare services in 2020. MedPAC projects that this margin will fall to -9% in 2022. Combined underpayments from Medicare and Medicaid to hospitals were $100 billion in 2020, up from $76 billion in 2019.
The pandemic has clearly demonstrated that America cannot be strong without its hospitals and health systems being strong.