Reforming wage index could help buoy troubled rural hospitals
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.” ●