9.1% inflation intensifies ASC, physician economic woes

U.S. inflation is currently at 9.1 percent, a 21-year high, and impending Medicare reimbursement cuts along with increasing overhead costs and staff wages are decreasing the already fine margins under which many ASCs and physician-owned practices operate. 

Here are five notes on how inflation is affecting ASCs and physicians:

1. Physicians are bracing for further CMS cuts to their professional fees in 2023. Medicare's physician fee schedule proposes to decrease the conversion factor by 4.42 percent to $33.08 while inflation and the cost of running an independent practice continue to rise. Insurers are also cutting reimbursement for procedures as well as bundling payments, which heightens the financial strain on many practices; overhead, staff salaries and inflation are increasing, while reimbursement is dropping.

2. Many ASCs administrators and physicians report insurers are keeping their rates low despite rising inflation. In addition, burdensome prior authorization restrictions are pushing more providers to consider direct contracting with employers, cash pay or other alternatives to the traditional insurance company model. Other physicians are selling their practices to hospitals or corporations or taking on private equity investment to support more complex revenue cycle processes.

3. The first six months of 2022 account for the six highest month-over-month inflation rates since 1985, according to business.org. But there is good news: After the last major inflation spike in 1980 (14.8 percent in March 1980), inflation fell steadily for the next 40 months before hitting 2.6 percent in June 1983. It may take time, but inflation will fall.

4. Gas prices surged 44 percent over the last 12 months, according to the Consumer Price Index, but declined 7.7 percent in July after an 11.2 percent increase the previous month, offering Americans much needed respite from high prices at the pump. Lower gas prices in August have raised hopes that inflation will ease, but the Biden administration is not banking on that with only one month of data. "It's no 'mission accomplished,' but some much-needed breathing room," Jared Bernstein, part of the White House's Council of Economic Advisers, told The Washington Post on Aug. 10.

5. Healthcare providers have reported surging labor, supply and equipment costs since the pandemic, according to the American Hospital Association. A 19.1 percent increase in labor expenses from 2019 to 2021, a 21 percent spike in supply costs per patient overall and a 37 percent increase in median drug costs per patient is eating into the thin margins under which many ASCs and physician-owned practices operate.

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