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Hospitals urge Congress to pass legislation extending moratorium on Medicare sequester cuts

New analysis shows that as many as half of U.S. hospitals could have negative operating margins throughout 2021.

Mallory Hackett, Associate Editor

(Photo by Westend61/Getty Images)(Photo by Westend61/Getty Images)

The American Hospital Association is imploring Congress to extend the moratorium on Medicare sequester cuts, citing new analysis from Kaufman Hall that predicts even in the best-case scenario hospitals will continue to suffer significant financial hardship throughout 2021.

By urging Congress to take action, it's seeking help in avoiding a 2% cut in Medicare payments that would exacerbate the financial challenges already facing healthcare providers, according to AHA President and CEO Rick Pollack.

"That's why it's critically important that Congress act as soon as possible to avoid real cuts in payments to providers on the frontlines where we're still dealing with a once-in-a-century pandemic that remains a national health emergency," Pollack said Tuesday during a media briefing.

"Keeping hospitals strong is in the interest of government at every level because this is about maintaining our ability to provide essential public services, this is about our ability to maintain our service as society's ultimate safety net, and this is about ensuring our ability to protect patients and serve our communities."

The AHA expects the Senate could vote this week on two bills that would postpone the sequester cuts.

One was passed last week in the House and postpones Medicare sequester payment cuts until the end of the year and exempts the budgetary effects of the $1.9 trillion COVID-19 relief bill from the Statutory Pay-As-You-Go Act of 2010.

The other is the Medicare Sequester Relief Act, which was introduced to the Senate last week by Jeanne Shaheen (D-NH) and Susan Collins (R-ME). The bill prevents Medicare sequester cuts from going into effect until the end of the public health emergency but doesn't address the 4% PAYGO cuts set to hit next year.

The Senate has until March 26 to vote on the bills before taking a recess over the Easter holiday and before the current moratorium ends on March 31.

"If the Senate does act before they leave town here, it sends a very strong signal to CMS to essentially hold those claims for about a week or so until the House can come back and hopefully approve the Senate action," Pollack said. "We've seen that occur in the past, and that would be a way to ensure that there is no damage done on this."

WHY THIS MATTERS

Even under the most optimistic scenario with a smooth vaccine rollout and reductions in COVID-19 hospitalizations, 39% of hospitals are expected to operate in the red during 2021, according to the Kaufman Hall report. Under this scenario, median hospital operating margins would be about 10% less than pre-pandemic baselines, which averaged 3.5%.

Considering a pessimistic outlook on 2021, roughly half of hospitals could have negative margins that are as much as 80% below the pre-COVID-19 figures, according to the report.

In comparison, prior to the pandemic, about a quarter of hospitals had negative operating margins, the report said.

The outlook for rural hospitals is even bleaker, with worst-case-scenario data showing no improvement in margin during the entirety of 2021. If things go as planned for the year, rural hospitals would still have median margins that are down 38%.

THE LARGER TREND

Under the Budget Control Act of 2011, the federal budget was scheduled to undergo cuts of more than a trillion dollars over a nine-year period, which resulted in 2% annual Medicare payment cuts.

However, Congress delayed those cuts during the pandemic through the Coronavirus Aid, Relief and Economic Security Act. The period initially ran through the end of 2020, and then until March 31, 2021.

But with the recent passing of the American Rescue Plan, $36 billion worth of budget cuts were triggered under the Pay-As-You-Go Act of 2010.

The PAYGO Act requires that new legislation changing taxes, fees or mandatory expenditures not increase projected deficits. If any do, automatic across-the-board cuts in selected mandatory programs must be made, according to the Office of Management and Budget.

Provider groups, including the AHA and the American Medical Association, have repeatedly asked congressional leaders to step in before the cuts go into effect.

In addition to these requests, the AHA has been pushing for more money through the Provider Relief Fund, which only has about $4.4 billion left from the previous relief package, and loan forgiveness.

ON THE RECORD

"We urge Congress to pass legislation that extends the moratorium on the Medicare sequester cuts so hospitals and health systems can sufficiently recover and continue to care for patients, families and communities," Dr. Cliff Megerian, the CEO of University Hospitals Health System, said during the press call.

Twitter: @HackettMallory
Email the writer: mhackett@himss.org