Hospitals Feel the Painful Pinch of Inflation, Too

Underpayments, workforce shortages, and high labor costs, escalating supply, equipment costs hammer our hospitals

Hardly anyone has escaped the effects of rising prices and inflation. Heating a home is more expensive this winter. Groceries, including an item as mundane as a carton of eggs, now cost more. Households and businesses are sharing in this push and pull of supply and demand with higher utility costs, higher prices for supplies, equipment, and essential items, and, in some industries, higher wage costs fueled by workforce shortages. The hospital and healthcare sector, an especially labor-intensive industry, is plagued by all these factors. Moreover, for this industry in particular, historically insufficient reimbursement by way of Medicare and Medicaid makes the situation much worse. 

Critical Condition

When you learn that hospitals in New York derive a significant portion of their revenue from these two government programs, it’s obvious why the math does not add up. In our suburban counties, 66 percent of hospital inpatient services were covered by Medicare and Medicaid in 2021. This is from Institutional Cost Report data that hospitals file annually. Yet, for each healthcare dollar provided in care by hospitals on Long Island and in the Hudson Valley, Medicaid paid just 60 cents on the dollar and Medicare paid 92 cents. There is a shortfall, and it is substantial for sure. In fact, New York State’s Medicaid Trend Factor, which is supposed to adjust for inflation, has not done so in nearly a dozen years, except for a one-percent bump in rates the legislature approved last year. This is despite rising costs, rising inflation, and rising enrollment in the Medicaid program.

Last fall, New York’s state and regional hospital associations sought to uncover just how dire the situation was. They sent a survey to New York’s not-for-profit hospitals and health systems questioning hospital leaders about hospital finances, nursing workforce needs, and patient volume for the period 2019 through projected 2022. Hospitals responded overwhelmingly and enthusiastically with a participation rate reflecting 90 percent of the annual revenue that New York’s hospitals and health systems generate.

The results showed an industry in crisis.

  • Four out of five hospitals reported negative or unsustainable operating margins
  • 49 percent reported they reduced/eliminated services to mitigate staffing challenges while ensuring their most critical services remained available
  • Hospitals reported their drug costs are up 42 percent; supply and equipment costs are up 20 percent; and energy costs are up 21 percent

The alarming results led the analysts to sub caption the Condition Critical report as “New Yorkers are losing access to care as a fiscal crisis hammers hospitals statewide.”

These are the consequences of an ongoing fiscal crisis like this – diminished access to care for patients. It’s a situation no hospital wants to face. Hospital and healthcare workers are in the business of providing care no matter the circumstances – we learned that through the extraordinary efforts of these individuals during the height of the pandemic.

State Budget Must Support Hospitals

During her State of the State address earlier this month, Governor Hochul outlined a variety of policy and program ideas that touched on affordable housing, public safety, and mental health needs. These are a few of her administration’s ambitious priorities. These are all worthwhile endeavors, but hospitals also want to see money dedicated to bolstering New York’s fragile healthcare system. This would mean an increase in Medicaid reimbursement rates that keep pace with inflation, a sizable investment in workforce, more money to replace and upgrade infrastructure, and certainly no cuts to existing healthcare programs.

Sadly, the existing pre-pandemic workforce shortage was made worse by the physical and mental demands of the pandemic. So many talented staffers left due to fatigue, emotional stress, and burnout. In May 2022, the U.S. Surgeon General sounded what he called an alarm about healthcare worker burnout and how this phenomenon is exacerbating the workforce crisis.  

The legislature and the executive branch can return the healthcare industry to “stable condition,” as they negotiate the upcoming 2023-2024 state budget. The pandemic changed all of us. Our world is a different place. Hospitals, which are still tending to the effects of the pandemic at the patient and operational level,  now face persistent workforce shortages and the exorbitant costs associated with that, as well as severe underpayments, and rising costs for just about everything that is needed to run a hospital.

In my next blog post, which I’ll upload after the release of the executive budget proposal, I’ll take a look at what that budget has to offer hospitals and by extension, patients.

About the Suburban Hospital Alliance of New York State

The Suburban Hospital Alliance of New York State advocates on behalf of hospitals in the Hudson Valley and Long Island regions. It engages key lawmakers and regulatory decision-makers in Albany and Washington to ensure reasonable and rational healthcare policy prevails.

About the Nassau-Suffolk Hospital Council (NSHC)   

The Nassau-Suffolk Hospital Council represents the not-for-profit and public hospitals on Long Island. It works in conjunction with the Suburban Hospital Alliance of New York State to advance legislative and regulatory priorities.  NSHC serves as the local and collective voice of hospitals on Long Island.

About the Northern Metropolitan Hospital Association (NorMet)  

The Northern Metropolitan Hospital Association represents the not-for-profit and public hospitals in the Hudson Valley region. It works in conjunction with the Suburban Hospital Alliance of New York State to advance legislative and regulatory priorities.  NorMet serves as the local and collective voice of hospitals in the Hudson Valley.

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