Robin Hood To Rescue Of Rural Hospitals? New Math Promised On Medicare Payments

As rural hospital closures roil the nation, some states are banking on the Trump administration proposal to change the way in which hospital payments are calculated to rescue them.

The objective of the proposal, unveiled by Centers for Medicare & Medicaid Services Administrator Seema Verma in April, would be to boost Medicare's reimbursements to rural hospitals, some of which receive the lowest rates in the nation.

For example, Alabama's hospitals – many of which are rural – stand to gain one more $43 million from Medicare the coming year if the federal agency makes this adjustment.

“We're hopeful,” said Danne Howard, executive v . p . and chief policy officer from the Alabama Hospital Association. “It's just as much concerning the rural hospitals as rural communities being able to survive.”

The proposed tweak, as wonky because it is, comes with considerable controversy.

By law, any proposed alterations in the calculation of Medicare payments should be budget-neutral; quite simply, the us government can't waste your money than previously allocated. That will mean any change would have a Robin Hood-like effect: increasing payments to some hospitals and decreasing them to others.

“There is indeed a political tension,” said Mark Holmes, director from the University of North Carolina's Cecil G. Sheps Center for Health Services Research. Changing the standards in Medicare's calculations that help hospitals in rural communities generally indicates urban hospitals get less money.

The federal proposal targets a long-standing and contentious regulation known in Washington simply as the “wage index.” The index, made in the 1980s in an effort to ensure federal Medicare reimbursements were equitable for hospitals nationwide, attempts to adjust for local market prices, said Allen Dobson, president of the consulting firm Dobson, DaVanzo & Associates.

That means under the current index a rural community hospital could receive a Medicare payment of approximately $4,000 to deal with someone with pneumonia compared with a metropolitan hospital receiving nearly $6,000 for the same case, based on CMS.

“The idea was to give urban a bit more and rural areas a bit less as their labor costs are a bit less,” said Dobson, who had been the research director for Medicare in the 1980s once the index was created. “There's probably no exact true method of doing it. I believe everybody agrees if you are inside a high-wage area you should get paid more for your higher wages.”

For decades, hospitals have questioned the fairness of that adjustment.

Rural hospitals nationwide have a median wage index that's consistently less than that of urban hospitals, based on a recent brief by the Sheps Center. The gap is most acute within the South, where 14 of the 20 states account for the lowest median wage indices.

Last year, the Department of Health and Human Services Office of Inspector General discovered that the index may not accurately reflect local labor prices and, therefore, Medicare payments to some hospitals “may 't be appropriately” adjusted for local labor prices. More plainly, in some instances, the payments are extremely low.

In an emailed statement to KHN, Verma said the current wage index system “has partly contributed to disparities in reimbursement across the country.”

CMS' current proposal would increase Medicare payments towards the mostly rural hospitals in the lowest 25th percentile and decrease the instalments to people in the highest 75th percentile. The company can also be proposing a 5% cap on any hospital's reduction in the final wage index in 2021 compared with 2021. This could effectively limit the loss in payments some would experience.

Dobson, a former Medicare research director, said he expects “enormous resistance.” (The CMS proposal is open for public comment until June 24.)

HHS Secretary Alex Azar, foreshadowing how difficult a big change could be, said during a May 10 Senate budget hearing that the wage index is “one from the more vexing issues in Medicare.” It's problematic, agreed Tom Nickels, an AHA executive vice president, noting in an emailed statement that there are different ways “to provide needed relief to low-wage areas without penalizing high-wage areas.”

It's this split that appears to be dictating the plethora of reactions.

The Massachusetts Health & Hospital Association's Michael Sroczynski, who oversees its government lobbying, questioned in an emailed statement if the wage index is the correct mechanism for providing relief to struggling hospitals. The state's hospitals have historically been in the more advanced of the wage index.

In contrast, Tennessee Hospital Association CEO Craig Becker applauded the proposed change and said the Trump administration is recognizing the “longstanding unfairness” from the index. Tennessee continues to be one of the hardest hit with hospital closures, counting 10 since 2012.

In Alabama, where four rural hospitals have closed since 2012, Howard asserted with no change she “could visit a dozen or even more in our hospitals not being able to survive the following year.” Indeed, Howard said, hospitals in additional than 20 states could gain Medicare dollars if the proposal passes and “only a little number actually harmed.”

Kaiser Health News asked the Missouri Hospital Association, in a state where most hospitals do not stand to gain or lose significantly from the rule change, to calculate the exact variations in hospital payments underneath the current wage index formula. Underneath the complex formula, a medical facility in Santa Cruz, Calif., a place at the very top end of the range, received a Medicare payment rate of $10,951.30 – or 70% more – for the treatment of a concussion with major complications this year, compared with a rural Alabama hospital, at the bottom end, which received $6,441.76 to supply exactly the same care.

Even more, MHA's data analysis showed that the low payments to Alabama hospitals have compounded with time. In 2021, Medicare increased its pay towards the hospitals in the Santa Cruz-Watsonville area for exactly the same concussion care. It now stands at $13,503.37 – a nearly 23% increase over the 2010 payment. In contrast, rural Alabama hospitals recorded a 3% payment increase, to $6,646.80, for the similar care.

For Alabama, addressing the calculation disparity might be “the lifeline that we've been praying for,” Howard said.