As hospitals rise in fees related to tariffs proposed by President Donald Trump, a new report from the American Hospital Association suggests drugs and supplies are just part of the problem.
Overall, hospital costs are steadily climbing – driven by long-term payments from payers, increasing administrative requirements, and increased labor costs. Here are three key details in the AHA report.
Medicare and Medicaid payouts total billions of dollars per year.
As the U.S. population grows older, more and more patients are experiencing serious health problems, and hospitals are increasingly costly. This challenge exacerbates the fact that more and more patients are insured through Medicare or Medicaid – often these patients pay less to the hospital than they actually are treating someone.
In 2022, Medicare and Medicaid will pay $130 billion less than the actual cost of providing care. The report said Medicare paid 82 cents to the hospital for just every dollar spent on patient care, resulting in $100 billion in loss of Medicare.
As time goes by, these gaps intensify. In the second half of the 2010s, Medicare and Medicaid paid more than $500 billion, which was 40% higher than the first half of the year even after considering inflation rates.
Hospitals will not compensate tens of thousands of dollars for their misdeed claims for vetoing tens of thousands of dollars each year.
The administrative costs of hospitals are largely due to the heavy lifting of commercial insurers, including Medicare Advantage and Medicaid hosted medical plans. While premiums are twice as fast as hospital prices in 2023, commercial insurers have added pressure through automatic claim denials and excessive prior authorization requirements.
Researchers estimate that hospitals only use to process previous authorizations each year, as well as another $20 billion in appeal claims denied, more than half of which are to be approved first.
In 2023, the MA program denial jumped nearly 56%, many of which were eventually overturned. But even if the denial of coverage is overturned, the hospital will not repay it on time and the costs of fighting it.
Labor costs account for 60% of total hospital spending.
The report says that over the past decade, hospital staff have paid and benefited much faster than the average inflation rate.
From 2021 to 2023, labor costs in hospitals increased by more than $42.5 billion to $839 billion, which is nearly 60% of total hospital spending. In 2023 alone, hospitals spent $51.1 billion on expensive contract workers to cover labor shortages, especially in rural areas.
Contract labor spending has been falling since the pandemic’s peak, but it remains high and continues to stress the hospital’s budget. It is also important to remember that labor costs are very sensitive to staff shortages, the report notes.
Photo: Jamesbrey, Getty Images
