The board of United Hospital Center in Clarksburg, W.Va., recently discussed giving its employees $1 million in raises.
The reason? Within the strange logic of Medicare reimbursement, such a raise could have garnered a $3 million boost in Medicare payments.
Who said the days of cost-based reimbursement are history? Under Medicare's hermetic methodology for wage indexes, a higher payroll would have allowed the large rural hospital to be reclassified to a higher-
reimbursement urban area.
As a designated rural referral center, 279-bed United already was spending more on personnel than other rural hospitals in West Virginia. Still, it wasn't paying workers 108% more than the rural wage index for the state. To be exact, it was paying them 106.5% more.
And that's the rub. Slipping below the 108% threshold for higher reimbursement is costing United $3.5 million-about $300 per Medicare patient-this year.
Geographic reclassification was United's only hope of receiving higher Medicare payments because its designation as a rural referral center has become a payment anachronism.
Rural referral center status was conferred on about 200 hospitals in 1983. Congress reasoned that such hospitals deserved higher Medicare payments because they provided more sophisticated services than run-of-the-mill rural hospitals. However, that payment incentive ended in the current fiscal year (See chart).
"It's unfair to a facility like ours," said Bruce Carter, United's president and chief executive officer. "Not every rural hospital has 100 beds and is doing low-intensity work."
The hospital's board didn't approve the proposed raise because it would not have guaranteed the higher payment when next year's wage index calculations are made. However, the hospital isn't playing a passive role in the debate over rural reimbursement.
During the past month, United and several other rural referral centers have been lobbying their representatives in Washington to extend special payments for rural referral centers, a "grandfathering" provision that already had been extended three times but ran out at the end of fiscal 1994.
If they don't receive the grandfather reprieve, the rural referral centers are asking for exemption from the 108% wage index threshold to receive urban reimbursement levels.
"If you drove your car up to the door of one of these hospitals, you'd think it was a big urban hospital," argued Dale Baker, an Indianapolis-based consultant who is working with several rural referral centers. "These hospitals are playing an increasingly large role in the rural healthcare system."
Yet, Medicare pays these hospitals the same standardized amount as other rural hospitals in its wage index calculations, which determine about 70% of a hospital's Medicare payment.
Until this fiscal year, Medicare segmented hospitals into three categories: large urban, other urban (designated as smaller urban areas) and rural.
Now only two categories exist: large urban and everyone else, with the large urban payment being the higher of the two. Although the standardized rate for large urban hospitals is only 2% higher than for other hospitals, the actual payments can be more than 15% higher when the urban wage index is figured in, Baker said.
Until this fiscal year, rural referral centers received the "other urban" payment, which was several hundred dollars per case higher than the rural payment. As Congress raised the rates paid to rural hospitals to equalize those of "other urbans," the differential paid to rural referral centers fell to zero.
Exempting rural referral centers from the 108% rule will carry a price-$100 million annually in additional Medicare payments.
A year ago, there were 211 rural referral centers. Of those, 51 continue to receive extra payment because they're also classified by Medicare as sole community providers. Of the 160 centers left, 83 were geographically reclassified because they met the 108% rule.
Reclassification was invented to give rural hospitals a chance to move up the payment ladder by getting the higher payment given in the adjacent metropolitan statistical area.
When thousands of hospitals-about a third of which were urban-received reclassification, HCFA in 1993 toughened qualifications for eligibility with the 108% rule. That required rural hospitals to have an average hourly wage of 108% of the statewide average hourly wage to receive reclassification.
Some are meeting the 108% criteria, but 77 rural referral centers are not and no longer receive additional payments, Baker said.
Baker figures that if HCFA waives the 108% requirement, it will add $100.3 million to the Medicare reimbursement of those hospitals.
However, because any change like this must be budget-neutral-meaning no change in overall spending-that $100.3 million would have to come from payments the other 5,000 hospitals receive from Medicare.
Yet, Baker points out that such a change would amount to a discount of 0.25%, or just $9.69 per Medicare discharge.
Whether Congress will approve such a change is debatable. "We have an uphill battle on the Hill because all (Congress wants) to do is slash, slash, slash," said Sally Rosenberg, a partner in the Washington office of McDermott, Will & Emery and a lobbyist for a coalition of rural referral centers.
However, she believes Congress can be swayed. "This is a group of hospitals worth protecting," she said.