- The CMS underestimated hospital labor spending when making payment adjustments for the 2022 fiscal year, resulting in hospitals receiving only a 2.4% rate increase compared to a 6.5% increase in hospital labor rates, according to a report out last week from group purchasing organization Premier.
- The agency's estimates of hospital spending growth using historic data represented less than the actual growth in hospital labor rates, resulting in data "unlikely to reflect reality," according to the GPO. That's significant as labor costs account for nearly 68% of hospital costs in the CMS' market basket calculation used to adjust hospital payments, Premier said.
- Hospitals would need an adequate inpatient payment update for fiscal 2023 to match the rates they are now paying staff, the report said. But the CMS proposed IPPS rule for next year released Monday includes a hike to hospital payments of 3.2%, which providers groups like the American Hospital Association rebuked as "simply unacceptable" considering inflation and the rising hospital labor costs.
Staffing challenges have been persistent for providers throughout the COVID-19 pandemic. After two years, hospitals are now focusing heavily on better recruitment and retention efforts as burnout spurs more healthcare workers to leave their roles.
Accordingly, systems have spent more on bonuses and other incentives, and have used more temporary agency labor to fill gaps.
More than 90% of health system leaders have increased compensation to recruit and retain staff, while 81% said they are still using agency labor, according to a survey of hospital leaders from Advis consulting out Monday.
Premier's report found that the CMS' estimates of hospital spending growth for FY 2022 did not accurately reflect how much hospitals spent on labor, supplies and services that year.
Hospitals' labor rates alone rose 16.6% on a per-paid-hour basis since the fourth quarter of 2020, "and do not show signs of slowing," Premier said.
"These costs do not appear to be exclusively related to the impacts COVID-19 has had on labor shortages as many clinical staff were in short supply long before the pandemic," the report said.
When updating hospital rates, the CMS uses a wage inflation index based on historical data.
When the CMS released the inpatient payment rate for 2023 last week, Premier said it fails to adequately cover the increased labor costs.
The Federation of American Hospitals also blasted the rate, calling the update "woefully inadequate." The proposed payment update "does not reckon for the hyper-inflation, staffing crisis, and the continuing pandemic, which will impact resources necessary for patient care well into the future," the group said.