The Chronic Problem of Hospital Payments

The content management system has completed a 2.9% increase in wages for hospital outpatient services in 2025, but the American Hospital Association says the additional wage increases fall well short of what hospitals need to meet today’s operational challenges.

“Persistent and substantial underpayment to Medicare hospital programs has been going on for nearly two decades, and today’s outpatient final rule only exacerbates this chronic problem,” AHA Senior Vice President Ashley Thompson said in a Nov. 1 statement. “The agency’s final increase of less than 3% for outpatient hospital services will make it difficult to provide health care, invest in the health care workforce, and address new challenges such as cybersecurity threats. These inadequate payments will have a negative impact on patient access. care, especially in rural and low-income communities across the country.”

Hospital margins are gradually improving across the industry, but nearly 40% of facilities are still operating in the red, and according to Kaufman Hall. Several factors contribution to this growing gap, including market positioning, payer mix, depth of outpatient services, wage inflation and contract labor management.

CMS’s final rule on outpatient payments will go into effect three months after the agency completed an increase in inpatient hospital payments by 2.9% in 2025.

The 2.9% wage increase represents a slight increase over CMS’s original 2.6% increase. proposed in April, but AHA asserts ‘inadequate’ payment update does little to help hospital sector when 40% of hospitals still losing money.

“The CMS payment update for hospitals will exacerbate the already unsustainable negative or break-even margins that many hospitals already operate in while caring for their patients,” Molly Smith, AHA Group Vice President of Public Policy, said in the statement. “The AHA is deeply concerned about the impact that these inadequate payments will have on patient access to care, especially in rural and underserved communities.”

Chip Kahn, president and CEO of the Federation of American Hospitals, said the organization has expressed concern that CMS hospital payment updates do not reflect inflation and the cost of hospital care, which remains high.

“Frankly, these inadequate payment updates and real Medicare DSH CMS cuts to the most vulnerable populations are leaving hospitals struggling to meet patient needs,” Mr. Kahn said. “To add insult to injury, the final rule exacerbates this problem by unnecessary exposure of the Centers for Medicare and Medicaid Services Innovation TEAM that will impose a mandatory payment model on hundreds of hospitals across the country. This demonstrates that the excessive pressure on hospitals will be reduced. seniors’ access to elective services and are forcing hospitals serving the nation’s most vulnerable patients to take on additional financial risk.”

AHA and FAH also objected to the two senators’ policy briefs detailing the plan to introduce site-neutral payments by hospitals.

A site-neutral payment policy would mean that payment for a health care service provided to a patient would be the same regardless of the setting in which the service is provided. Supporters of the policy see it as a way to reduce health care costs for patients and taxpayers through Medicare, but it would lead to significant pay cuts for hospitals and health systems.

Hospitals argue that their higher prices are due to the higher overhead costs they incur compared to other providers, such as emergency services and 24-hour access, regulatory compliance, and supply and labor costs.

The latest framework, introduced by U.S. Senators Bill Cassidy, MD, R-Louisiana, and Maggie Hassan, MD, on November 1, argues that the policy would lower health care costs for patients, improve Medicare financial stability, and reduce provider consolidation services and help rural hospitals serving high-need communities.

However, the AHA argues that this system would limit or eliminate critical hospital care, leading to longer wait times and decreased access to care.

“It is irresponsible to think that restoring Medicare spending to $140 billion for older adults will not destabilize access to care,” AHA Executive Vice President Stacy Hughes said in the report. statement. “Rather than addressing the root causes driving physician hiring, it instead proposes sweeping and unsustainable cuts to Medicare, reducing seniors’ access to critical hospital care.