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Medicare Pay Won’t Be Tailored to Providers

Federal law gives HHS ‘flexibility and discretion’ in calculating reimbursement rates

A federal appeals court’s rejection this month of a lawsuit challenging the way the Department of Health and Human Services (HHS) calculated Medicare reimbursement rates in 2006 and 2007 has sent a clear message to health care leaders: “Don’t expect Medicare to change its ways to keep things fair,” according to an article posted by HealthLeaders Media.

The lawsuit was filed by 41 New England hospitals seeking $24 million in damages from what they argued were unreasonably low reimbursement rates. Specifically, the hospitals contested the HHS secretary’s decision in 2005 to change the boundaries of the geographic areas used to compute regional wage indices.

The wage indices are critical to hospital reimbursement rates because the cost of providing care can vary significantly depending on where a hospital is located, the hospitals explained in their complaint. An influential factor is the wages paid to hospital employees, which fluctuate based on the cost of living in different geographic areas.

To help compensate for those disparities, the HHS annually computes a wage index that compares hospital wages within defined geographic areas with a national average, and adjusts Medicare reimbursements accordingly.

When the wage indices were computed in 2006 and 2007, the geographic boundary lines fell in a way that left three multicampus hospitals straddling different geographic areas. Those hospitals were deemed to be merged facilities operating as a single institution. Consequently, their combined wage data were applied to the wage index for the main provider’s geographic area.

Reimbursement for Medicare services, however, was based on the wage index of the area in which the patient was discharged. That left hospitals with lower reimbursement rates than they thought they were due.

Circuit Judge Patricia Millett wrote the opinion for the three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit, saying federal law gives the HHS “flexibility and discretion” in calculating the reimbursement rate for different geographic areas based on local wages.

The issue is an unexpected consequence of the frenzy for hospital mergers in recent years, according to HealthLeaders Media. In 1996, three hospitals in southeastern Massachusetts — Tobey Hospital, St. Luke's Hospital, and Charlton Memorial Hospital — merged to form Southcoast Hospital Group. Southcoast chose Tobey Hospital as its main campus for Medicare purposes, and Southcoast operates as a unified hospital under a single Medicare provider agreement and provider number.

From 1996 until 2005, all of Southcoast’s campuses were in the Boston–Quincy geographic area. However, when the HHS switched to Core-Based Statistical Areas in fiscal year 2005, Tobey Hospital remained in the Boston–Quincy area while St. Luke’s and Charlton Memorial fell within the Providence area.

Because Tobey Hospital is Southcoast’s main campus and holds the Medicare provider number under which Southcoast operates, Southcoast continued to provide its multicampus wage data in a single report, which the HHS Secretary then applied to the wage index calculation for the Boston–Quincy area. In 2008, the HHS switched to using Southcoast’s Medicare discharge data to allocate the previously submitted and audited wage costs to individual campuses, prompting the Boston–Quincy wage index to increase by 0.0147.

Craig B. Garner, JD, an attorney and adjunct professor at the Pepperdine University School of Law in Malibu, California, said the case is a clear signal to health care leaders that it is not worth suing HHS over those losses.

The standard for reviewing such cases is whether the government had a rational basis for the decision, Garner explained. If the government relied on information or analyses that the court deems reasonable, the decision will stand no matter how unfair it seems to any particular hospital or system.

“This is just the way it is,” Garner said. “Our health care system is so complicated now that it cannot accommodate the needs of individual health care entities even when it is proven that they’re not getting a fair shake.”

Source: HealthLeaders Media; August 27, 2015.


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