Analysts for the Medicare Payment Advisory Commission have challenged an American Hospital Association-backed proposal aimed at equalizing Medicare's labor-related reimbursement for rural and urban hospitals.
The decision, though not final, is a blow to the AHA's efforts to boost Medicare payments to rural hospitals by as much as $10 billion during the next five years. MedPAC's recommendations will be included in a June report to Congress on rural healthcare, and lawmakers are expected to use the report to guide healthcare policymaking for years to come.
MedPAC will vote on most of its analysts' recommendations in April.
Analysts for the advisory board say the proposal to set a minimum wage index isn't reasonable because it would overpay hospitals for labor costs. A better alternative would be to gather hospital-specific labor costs and reimburse hospitals on that basis, they say.
The wage index is used to adjust hospital reimbursement for regional differences in labor costs.
The AHA wants a floor on the index of about 92% of the national average. Some hospitals now have wage indexes as low as 72% of the average, while the highest index used is 151% of the average.
MedPAC analyst Julian Pettengill says some rural hospitals are being overpaid for their labor costs, despite lower reimbursement rates. "There are a lot of small rural hospitals out there that are being paid on the basis of a wage index that is higher than their wage rates," he says. "If they're hurting, it's for a different reason."
Carmela Coyle, the AHA's senior vice president for policy, says rural hospitals often are forced to pay more to retain nurses because they compete against hospitals in urban markets where nurses are in short supply. A floor on the wage index would provide immediate help to hospitals in low wage-index areas, she said.
At the MedPAC meeting held last month in Washington, analysts also presented a draft recommendation to eliminate physicians, residents and nurse anesthetists from wage-index calculations next year. A current HCFA regulation calls for phasing out those positions from the index calculations through 2005. The move will redistribute money to nonteaching hospitals from teaching hospitals.