As hospital officials combed through the provisions of the Medicare reform bill signed earlier this month by President Bush, they discovered there was a piece of the pie for just about everybody in the sweeping legislation.
From full inflation payment updates for all hospitals that agree to join a voluntary quality initiative to improvements for the critical-access program and increased funding for rural hospitals and teaching hospitals, the industry recognized the legislation as a historic victory.
"We consider it a major achievement," says Rick Pollack, executive vice president of the American Hospital Association. "You have a package that helps both urban and rural hospitals. The concerns of the rural hospitals gave the fuel to this whole package."
While rural hospitals stand to benefit the most from the Medicare reform, all hospitals will see gains as a result of the legislation.
Inpatient prospective payments will rise at a level that matches inflation, boosting funding for all hospitals that submit quality data for 2005 through 2007 on clinical measures involving patients who suffer from heart attacks, heart failure and pneumonia. Hospitals that do not submit such data will receive an increase that is 0.4 percentage points lower.
A rural bonanza
Rural providers were clearly the biggest winners. At the heart of the provider relief is a provision calling for Medicare to pay rural and small urban hospitals based on the standardized payment amount for hospitals in large urban areas. Creating equal urban and rural payments under the prospective payment system "gives every hospital in the country an opportunity to have a full update," Pollack says. The standardized amount for rural hospitals and hospitals in cities with populations under 1 million will increase by 1.6% under the new law.
Rural providers also stand to get about $25 billion over 10 years as a result of these increased standardized payments and Medicare disproportionate-share payments, which will increase from 5.7% to 12% of total Medicare inpatient payments in 2004, according to the National Rural Health Association.
Another significant bump for rural hospitals will come from a change in the portion of Medicare reimbursements that is based on area wage indexes. Because rural wages are lower than urban areas, the reduction in the portion of the reimbursement based on those wages from 71% to 62% will serve to boost payments. Areas with high wages will see decreased payments when the change takes effect on Oct. 1, 2004.
Exactly how much this will affect hospitals is unclear, however. Tom Scully, who last week left office as CMS administrator, said that lost in the shuffle of the Medicare debate was the fact that his agency failed to complete a geographic reallocation of area wage rates across the country this year. The current wage indexes are based on 1990 census data, and the U.S. Census Bureau "didn't get us 2000 data in time" to complete the reallocation for fiscal 2004, Scully says.
"CMS should do an entire geographic wage adjustment of the entire country by next Oct. 1," he says. When it is done, "it will cause a lot of chaos. There are going to be huge winners and losers."
The rural health association, which represents 3,000 hospitals, supported the Medicare legislation because after years of disparity that has threatened their viability, it puts rural providers on a level playing field with their urban counterparts when it comes to reimbursements, says the group's president, Wayne Myers.
By boosting reimbursements, rural hospitals will be better able to compete with urban hospitals for nurses and up-to-date equipment, he says.
Decreasing the wage index, for example, will put less weight on that category and help rural hospitals because "they are competing with urbans for the workforce," Myers says. "There have been some unfortunate things built into reimbursement formulas for a real long time. This bill is a big boost for the rural healthcare system."
Experts agree that the biggest winners on the rural scene are critical-access hospitals, which already receive more favorable, cost-based Medicare reimbursements than larger acute-care hospitals. Rules governing critical-access hospitals had required the facilities to have an average daily census of fewer than 15 acute-care patients to qualify for the designation.
Under the Medicare law, critical-access hospitals will be permitted beginning Jan. 1, 2004, to operate up to 25 acute-care beds, which will help facilities that exceed the current 15-patient limit because of seasonal increases. A General Accounting Office report suggested the critical-access census limit of 15 acute-care patients per day be adjusted to an annual average of 15 patients to take into account the seasonal variations (Sept. 29, p. 17).
Critical-access hospitals, which numbered 681 in 2002 according to the GAO report, also will receive inpatient and outpatient reimbursement at 101% of cost, effective Jan. 1.
In a provision that will enable hundreds of rural hospitals to convert to critical-access facilities, the legislation eliminates the restriction that prohibits critical-access hospitals from operating psychiatric and rehabilitation units. The legislation will allow critical-access hospitals to operate up to 10 psychiatric or rehabilitation beds beginning Oct. 1, 2004.
"This is the support rural hospitals are getting just in the nick of time," says Tim Size, executive director of the Rural Wisconsin Health Cooperative. "It is getting us a little closer to a level playing field."
T.J. Padden, chief executive officer of 44-bed Box Butte General Hospital, Alliance, Neb., says the change in critical-access laws could mean the difference between turning a profit or recording a loss. "I am thankful to Congress because it is going to mean the survival of many rural hospitals," Padden says. "It makes critical access work for our community. With an average of 25 (beds), we can comply with that."
With critical-access status, Padden says he expects a higher rate of reimbursement and about $750,000 more in Medicare reimbursements annually. The hospital reported an approximate loss of $750,000 last year. "This moves us back to break even," he says.
Rural hospitals with less than 800 inpatient discharges per year also will be eligible for an increase of up to 25% in Medicare payments if the facilities are at least 25 miles from a similar hospital. The increases will begin in fiscal 2005.
Medical education gets boost
Teaching hospitals also were the beneficiaries of increased funding as adjustments were made to the indirect medical education payment.
The payments cover higher expenses that teaching hospitals incur as a result of productivity losses because of a larger number of residents and medical students. Teaching hospitals also treat sicker Medicare patients and maintain sophisticated services ranging from trauma centers to burn units, says Dick Knapp, executive vice president of the Association of American Medical Colleges, which represents 350 teaching facilities.
The formula used to compensate hospitals for indirect medical education expenses will increase from 5.5% to 6% for the final six months of fiscal 2004, before dropping to 5.8% in fiscal 2005. The following year the adjustment will drop to 5.5% and decrease to 5.35% in 2007. By fiscal 2008, the adjustment will revert back to its current rate of 5.5%.
Teaching hospitals will receive about $400 million as a result of the adjustment, Knapp says. "It is not a major amount of money. Symbolically, it's an important matter because this issue has been on the chopping block."
Hospitals located along the U.S. border also will see an infusion of cash to help offset the costs of caring for illegal immigrants who arrive in emergency departments seeking care. Under the Emergency Medical Treatment and Active Labor Act, hospitals must provide emergency care to a patient, regardless of insurance coverage or proof of citizenship.
The Medicare bill earmarks $1 billion over four years for hospitals and physicians that have been providing uncompensated care for illegal immigrants. The funding will go to hospitals in states in which the U.S. Census Bureau has recorded the highest number of illegal immigrants and the police have reported the greatest number of apprehensions.
Providers will apply for the funding through HHS, which will decide on funding levels for individual hospitals. The funding, which begins in October 2004, is welcome news to hospitals in states such as Arizona, California, New Mexico and Texas.
According to an Arizona Hospital and Healthcare Association survey of 39 hospitals in that state, more than $153 million in uncompensated care was provided to illegal immigrants in 2002, says Sheri Jorden, the association's senior policy director.
At Carondelet Holy Cross Hospital in Nogales, Ariz., a border town, the funding will be used to boost the hospital's bottom line and improve infrastructure and technology, says the hospital's senior vice president and CEO Richard Polheber. The 79-bed hospital will provide an estimated $400,000 in uncompensated care in 2003 for immigrants, he says.
"Anything that will help close the gap is very important to us," says Polheber, who has seen patients come to the emergency room after being injured jumping the wall at the border. "The real impact starts in the ER."
Medical technologies also came out a winner under Medicare reform, as the legislation included a $500 million package that allows new clinical technologies to be included in the prospective payment system beginning in 2005. The legislation calls for new diagnostic and procedural codes for new devices, such as technology for congestive heart failure and other cardiovascular diseases, to be introduced into the DRG system twice a year, instead of annually.
-with Jeff Tieman