Brief Segment: AHIMA-ACDIS Practice Brief

And today I'm going to be talking about how inflation is outrunning Medicare reimbursement and Medicaid may be even a bigger problem.

So since 2020, cumulative inflation has been rising faster than Medicare IPPS operating rate updates, shrinking the purchasing power of hospital reimbursement.

So hospitals buy labor, pharmaceutical supplies, utilities, insurance, cybersecurity, and food on the same inflationary economy as everyone else.

Government reimbursement, however, moves on a different clock.

That timing has become increasingly important since 2020.

Using Bureau of Labor Statistics Annual Consumer Price Index for all consumers, the CPIU, overall prices have increased approximately 24.4% from 2020 through 2025.

Now, during that same period, the cumulative Medicare IPPS operating rates for that period have only risen about 16.7%.

And for those who like to read, I have a handy-dandy graph that I have put into my article when you see it published that shows the years and the splits.

So indexed at 2020, equaling 100, the CPI reached approximately 124.4 by 2025, while the cumulative Medicare IPPS rate only reached 116.7. Now, that 7.7% difference is not merely an accounting curiosity.

It represents a loss in purchasing power.

CPI and the Medicare hospital market basket are not identical measures.

Medicare payments are also affected by wage indexes, MS-DRG recalibration, dish payments, quality reimbursement, geographic adjustments, and other factors, but the direction's clear.

Hospitals' costs accelerated faster than the headline Medicare update.

So CMS does not simply give hospitals its projected hospital market basket rate of increase.

Federal law requires a productivity adjustment.

So for 2026, CMS projected hospitals' input prices would increase 3.3% or reduce the update by 0.7 percentage points, producing an overall 2.6% increase for 2027.

CPS projected a 3.2% market basket increase, but finalized only at 2.3%.

update or a 0.9% percentage reduction for productivity.

So in effect, hospitals are expected to offset part of inflation through productivity.

That's more and more difficult when nursing salaries, pharmaceuticals, technology, insurance, and purchasing services are rising simultaneously.

But Medicaid may be even a bigger problem.

There is no national Medicaid hospital rate comparable to Medicare IPPS, and states use different base payments methodologies than layer-on-dish supplemental payments and uncompensated care pools.

Inflation becomes particularly damaged when Medicaid rates are built on old cost years.

If a state starts with a historical plan, $10,000 cost that is already understated, the later 3% increase does not restore adequacy.

It simply says that 103% of the adequate number.