Working for the government has its ups and downs. On the one hand, a regular paycheck is nearly guaranteed, short of fraud and abuse (waste is SOP). On the other, that paycheck may not always keep up with fast moving economic realities.
In the post-ACA period, new and pent-up demands for health care poured into the system, labor got tight and the salary and benefits lines increased. Medicare reimbursement for labor, the primary input for most health care did not quite keep up. However, by 2016, the #ACATaper, backlogs cleared, reimbursement caught up and some semblance of balance was restored.
The lag in labor reimbursement is due to the way in which CMS calculates it. The primary input is the Employment Cost Index which is published quarterly. A CMS contractor then makes certain assumptions and produces a forecast which is then applied to the Medicare Prospective Payment System. By design, the labor cost input does not jump around in response to short term gyrations in labor costs. Medicare providers are presumed to have sufficient capital and business acumen to weather the storms, much as they did in 2014-2016.
The story of 2020 - 2022/23 will be somewhat similar, just more so. The Employment Cost Index is running 30% of the Aggregate Weekly Payrolls Index on a YoY% basis with AWP accelerating on a QoQ basis. In 3Q 2015, it was about 1/3 with much less volatility. The exception here is that loads of money is still floating around from Provider Relief Funds, etc., that could mute the impacts for a while longer.
If access becomes an issue, Congress could intervene. I just would not bank on that given their temperament lately.
Let me know what you think.
Emily Evans
Managing Director – Health Policy
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