Legislation and regulatory changes since 2010 have cut payments to hospitals by billions of dollars, and a new report by health economics consulting firm Dobson DaVanzo & Associates predicted those payment reductions will reach $218.2 billion by 2028.
The cuts include $79.3 billion for Medicare Severity Diagnosis Related Groups (MS-DRG) documentation and coding, $73.1 billion for sequestration and $25.9 billion for Medicaid Disproportionate Share Hospital (DSH) payments.
The Federation of American Hospitals (FAH) and the American Hospital Association (AHA) commissioned the study to look at how 11 pieces of legislation, combined with regulatory changes, are affecting payments.
Despite millions of newly insured Americans since the Affordable Care Act (ACA), which helped reduce uncompensated care, other actions from Washington, D.C., have taken money from hospitals. These cuts haven’t been isolated to healthcare legislation. Hospitals have seen reimbursements hit in federal budget bills and legislation that focused on other areas, such as military retirees, tax relief and jobs.
FAH President Chip Kahn said policymakers need to understand the cuts made to hospitals and impacts they can have on patients and communities.
AHA President Rick Pollack said the cutting trend is causing many hospitals and health systems to struggle to offer services. Those cuts include Medicare margins hitting a 10-year low and nearly one-third of hospitals with negative aggregate margins across all payer types. “Additional reductions will create challenging and potentially unsustainable financial circumstances that could adversely impact patients’ access to care and the ability of hospitals to provide services,” Pollack said.
Digging deeper into how hospital documentation and coding adjustments have affected hospital payments, the study found nearly $80 billion in cuts from regulatory changes ($50.9 billion lost), Medicare Access and CHIP Reauthorization Act of 2015 ($16.4 billion), the American Taxpayer Relief Act of 2012 ($10.95 billion) and the 21st Century Cures Act ($1 billion). Just looking at the impact of sequestration, the study authors found five bills that will cut more than $73 billion by 2028.
These cuts include direct regulatory changes, as well as the transition to value-based payment models. Paying hospitals and providers by value rather than by service is seen as the future of healthcare, but there will inevitably be growing pains for hospitals and providers while payers, including Medicare, figure out the best payment structure.
Hospitals face a tough present and future. Federal lawmakers and regulators continue to look for healthcare savings, which often come on the backs of hospitals. In the past, hospitals might have been able to make up on lower Medicare and Medicaid payments from getting higher private payer reimbursements. However, private payers have also cut their reimbursements as they too look to squeeze dollars out of the system, so there isn't as much opportunity to offset public payments.
Commercial payers have created policies that seek to move care away from hospitals to lower-cost outpatient facilities. Anthem’s imaging and emergency room policies have created the biggest headlines, but that payer’s cost-saving programs are far from the only ones.