Re­form­ing wage in­dex could help buoy trou­bled ru­ral hos­pi­tals

Modern Healthcare - - Finance - By Alex Kacik

ALABAMA’S RU­RAL HOS­PI­TALS are fac­ing the most ten­u­ous fi­nan­cial cir­cum­stances that Danne Howard has seen dur­ing her 23-year ten­ure at the Alabama Hos­pi­tal As­so­ci­a­tion.

The num­ber of unin­sured in the non-Med­i­caid ex­pan­sion state and the wage in­dex are the two big­gest con­tribut­ing fac­tors, she said.

With­out com­pre­hen­sive re­form of the wage in­dex, ru­ral Alabama hos­pi­tals will never get out from the bot­tom of the pile and res­i­dents will lose ac­cess to care, Howard said.

“It will cause more clo­sures, some of which are im­mi­nent,” said Howard, the chief pol­icy of­fi­cer at the as­so­ci­a­tion.

Howard’s or­ga­ni­za­tion is among a num­ber of hos­pi­tal as­so­ci­a­tions, providers and pol­icy ex­perts who be­lieve re­vamp­ing the tool the CMS uses to set hos­pi­tal pay­ments could be a life­line for ru­ral hos­pi­tals.

HHS’ Of­fice of In­spec­tor Gen­eral sug­gested changes to the wage in­dex in a re­port last week that found holes in the sys­tem that has re­sulted in mil­lions of dol­lars of im­proper pay­ments to hos­pi­tals across the coun­try. The flawed cal­cu­la­tions created a se­ries of win­ners and losers whose re­im­burse­ment lev­els are min­i­mally tied to wages, la­bor costs and cost of liv­ing, as the in­dex ini­tially in­tended.

Ru­ral Alabama hos­pi­tals have some of the low­est re­im­burse­ment rates in the coun­try. An Af­ford­able Care Act man­date that the in­dex be bud­get-neu­tral on a na­tional ba­sis has only wors­ened the prob­lem, Howard said. The re­im­burse­ment gap widened be­tween hos­pi­tals in Alabama and Cal­i­for­nia, where pay­ments are three times higher.

Hos­pi­tals have told the CMS that the dis­par­i­ties be­tween high- and lowwage ar­eas are vast, par­tic­u­larly for ru­ral hos­pi­tals or ones that are fi­nan­cially strug­gling, CMS Ad­min­is­tra­tor Seema Verma noted in a re­cent blog post on the agency’s web­site.

“We know that ac­cu­rate and ap­pro­pri­ate Medi­care pay­ment rates are es­sen­tial to all hos­pi­tals, es­pe­cially ru­ral ones,” Verma wrote, adding that the agency is re­view­ing the in­dus­try feed­back as it con­sid­ers fu­ture ac­tion.

But the CMS doesn’t have the proper tools to en­sure the rates are ac­cu­rate, the OIG re­port found.

The CMS lacks the au­thor­ity to pe­nal­ize hos­pi­tals that sub­mit in­ac­cu­rate wage data and Medi­care ad­min­is­tra­tive con­trac­tors’ limited re­views don’t al­ways catch in­cor­rect num­bers, the re­port found. The wage in­dex’s ru­ral floor and hold-harm­less pro­vi­sions de­crease the tool’s ac­cu­racy, the OIG said.

This has re­sulted in at least $140.5 mil­lion in mis­al­lo­cated pay­ments to 272 hos­pi­tals from 2014 to 2017, ac­cord­ing to the re­port. No­tably, that sum only re­flects the find­ings of the agency’s last five re­ports.

The ru­ral floor pro­vi­sion en­sures that the wage in­dexes ap­plied to ur­ban hos­pi­tals can­not be lower than the ru­ral area wage in­dex. The in­tent was to pre­vent some ur­ban hos­pi­tals from be­ing paid less than the av­er­age ru­ral hos­pi­tal in their state.

But the Medi­care Pay­ment Ad­vi­sory Com­mis­sion has said that the pol­icy is built on the false di­chotomy that hos­pi­tal wage rates in all ur­ban la­bor mar­kets are al­ways higher than the av­er­age hos­pi­tal wage rate in ru­ral ar­eas. Also, the CMS has said that the ru­ral floor cre­ates a ben­e­fit for a mi­nor­ity of states that is then funded by a ma­jor­ity of states, in­clud­ing those that are over­whelm­ingly ru­ral.

Un­til the ACA, the CMS re­quired that any pay­ments through wage-in­dex ad­just­ments must use ex­ist­ing funds, or be bud­get-neu­tral within a state. Now er­rors in one ru­ral hos­pi­tal’s wage data can have na­tional im­pact. In fis­cal 2018, hos­pi­tals had their wage in­dexes low­ered by 0.67% to main­tain na­tional bud­get-neu­tral­ity with re­spect to the ru­ral floor, ac­cord­ing to the OIG.

In Mas­sachusetts, that meant that 36 ur­ban hos­pi­tals would re­ceive a wage in­dex based on hos­pi­tal wages in Nan­tucket, home to the only ru­ral hos­pi­tal con­tribut­ing to the state’s ru­ral floor. The CMS es­ti­mated that those 36 hos­pi­tals would re­ceive an ad­di­tional $44 mil­lion in in­pa­tient pay­ments.

These in­creased pay­ments were not based on ac­tual lo­cal wage rates but on the re­quire­ments of the ru­ral floor wage in­dex law. Pay­ment in­creases re-

sulted in re­duc­tions for other states.

Also, Nan­tucket Cot­tage Hos­pi­tal sub­mit­ted in­ac­cu­rate wage data for 2015, re­sult­ing in an over­pay­ment of $133.7 mil­lion to all 56 acute-care hos­pi­tals in Mas­sachusetts.

Even if ru­ral hos­pi­tals raise wages to com­pete with ur­ban hos­pi­tals, it’s dis­ap­point­ing to see that their num­bers will be skewed lower, said Christina Cam­pos, Guadalupe County (N.M.) Hos­pi­tal’s ad­min­is­tra­tor.

“The whole idea of not be­ing held ac­count­able around ac­cu­rate re­port­ing serves to hurt ru­ral hos­pi­tals more be­cause of the ru­ral floor,” she said. “We will con­tinue to give money to ur­ban ar­eas, and un­der a bud­get-neu­tral sys­tem, ru­ral ar­eas will con­tinue to lose.”

New mod­els are needed for how ru­ral hos­pi­tals op­er­ate, but this is some­thing that ex­ac­er­bates the sit­u­a­tion, said Dan Men­del­son, pres­i­dent of Avalere Health.

“To the ex­tent that un­der­pay­ment is hurt­ing hos­pi­tals on thin mar­gins, this adds to their trou­bles,” he said.

Short of a com­plete over­haul, which the CMS is cur­rently con­sid­er­ing but sources said is more of a long shot, the OIG pro­posed sev­eral rec­om­men­da­tions to im­prove the in­dex. The CMS should seek leg­isla­tive au­thor­ity to pe­nal­ize hos­pi­tals that sub­mit in­ac­cu­rate wage data and work with Medi­care ad­min­is­tra­tive con­trac­tors to de­velop a pro­gram of in-depth wage data au­dits at cer­tain hos­pi­tals each year that skew their mar­ket’s wage in­dex, the OIG said.

The CMS should also pro­mote leg­is­la­tion that re­peals the ru­ral floor and hold-harm­less pro­vi­sions. Oth­er­wise, the CMS should aim to re­peal the hold-harm­less pro­vi­sions re­lat­ing to the wage data of re­clas­si­fied hos­pi­tals. Or, it should look to re­scind its own hold-harm­less pol­icy to use the wage data of a re­clas­si­fied hos­pi­tal to cal­cu­late the wage in­dex of its orig­i­nal geo­graphic area.

The CMS said it would con­sider each rec­om­men­da­tion ex­cept for the last one, stat­ing that us­ing data “from the most hos­pi­tals to cal­cu­late the av­er­age wages for an area pro­vides the most ac­cu­rate and sta­ble mea­sure.” ●

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