Medicare reimbursement rates should not be the standard to which commercial insurance rates are created, according to the American Hospital Association.
A report published April 29 says modeling commercial rates off Medicare leads to underpayments, increased costs and less savings for members from payers. The hospital group is urging strengthened Medicare rates that are not held up as an industry standard.
Four key takeaways:
1. Medicare reimbursement rates do not cover the actual cost of the care:
Medicare paid 84 cents for every dollar spent by hospitals caring for Medicare patients in 2020, resulting in $75.6 billion in underpayments for Medicare services that year, according to AHA survey data.
2. Medicare rates are slow to respond to inflation, supply shortages and increased costs for staff:
Medicare payment rates are in place for a year before they can be updated. Due to data lags, payment rate changes are typically made based on older data.
3. Medicare rates are subject to political pressure:
Lawmakers cut Medicare rates to balance budgets. Benchmarking commercial claims to Medicare payment rates means arbitrary rate cuts that affect provided care.
4. Chronic underpayments threaten the communities hospitals serve:
Arbitrarily reducing commercial rates will exacerbate financial pressure on already-struggling hospitals. Hospitals serving rural and underserved communities will struggle to stay open or continue providing the same services.