Hospitals in three Southern states want HHS to refund more than $260 million they say was lost to a Medicare payment rule that also grabbed the attention of several lawmakers last week.
At issue in both the lawsuit and Congress is a controversial policy under which Medicare uses a wage index to adjust hospital payment rates based on their area labor costs. In Alabama, Louisiana and Mississippi, 97 hospitals were shortchanged of roughly $261 million in 2003 and 2004 because of the CMS' flawed methods for calculating the wage index, according to a lawsuit the Alabama Hospital Association filed last week in U.S. District Court in Washington.
The federal government has used "arbitrary methods that haven't been backed up with evidence" to calculate labor costs at hospitals in the three states and elsewhere around the country, said Rosemary Blackmon, spokeswoman for the Alabama association.
A CMS spokesman said the agency can't comment specifically on pending litigation, "But we want to make sure that we continue to provide access to care for beneficiaries and pay appropriately for the services provided to them."
Under a separate but related policy, the CMS suggested in its proposed inpatient payment regulation for 2005 that the agency use new payment regions, or metropolitan statistical areas, to determine the wage index for hospitals in each area (May 17, p. 8). The new regions were established using census data from 2000 rather than 1990.
The proposed changes have heated up the wage index issue in the Northeast, where New York hospitals contend that the CMS' proposed wage areas would redistribute as much as $700 million of their payments to hospitals in three New Jersey counties, including Bergen, Hudson and Passaic. As of last week, at least 13 members of the U.S. House of Representatives' New York delegation had signed a comment letter the lawmakers plan to send to the agency this week.
The proposed regulation, which is open to public comment until July 12 and becomes final on Oct. 1, would move 22 New Jersey hospitals into the New York region, thereby decreasing payments for New York hospitals that officials say are already struggling while increasing them for many New Jersey hospitals.
In New York, at least 71 hospitals would see their Medicare payments decline by $64 million next year, $58 million of which would flow to hospitals in three New Jer- sey counties, according to an analysis by the Greater New York Hospital Association, which is preparing its own letter to the CMS. Over 10 years, the association and others have estimated, New York hospitals could lose $700 million to facilities in New Jersey and elsewhere.
In the group's comment letter "We're going to list a series of options and we're calculating what those options might be, for us and for others," Kenneth Raske, president of the GNYHA, said. If the CMS' new regions go into effect, Raske said, "Medicare beneficiaries in the affected area (of New York) would be negatively impacted in terms of service cutbacks and a degradation of the service menu."
Last week, New York Reps. Carolyn Maloney and Charles Rangel, both Democrats, and Peter King, a Republican, were drafting a letter to the CMS that they planned to submit on July 12, in time for the CMS' comment deadline on the proposed payment regulation. Staff members declined to release the letter until it was complete. They said they hoped New York's senators, Charles Schumer and Hillary Rodham Clinton, both Democrats, would sign on as well, but at deadline it was not clear if the senators would do so or if they would submit a letter of their own. Schumer has said he would oppose the wage index rule as proposed by the CMS.
Rather than the rapid changes that would be imposed by the CMS' new regions, "There should have been a more natural progression of understanding that New Jersey hospitals belong in New York (metropolitan statistical areas)," said an aide of Rep. Frank Pallone (D-N.J.).
Responding to the idea of incrementally adopting the new regions, Herb Kuhn, director of the CMS' Center for Medicare Management, said, "If people want to talk about transitions, we are more than willing to entertain those thoughts." Annual adjustments to the wage index create less of a disruption than changes made each decade because the new regions created by updated census data can significantly affect hospital payments.
Lawmakers and many hospitals in New Jersey look at the situation differently. "To whatever extent (New York lawmakers) are trying to move a letter or legislation to oppose this, we obviously would have the opposite reaction," Pallone's aide said. Hospitals in Pallone's district stand to benefit from the new designations, she added. Aides to New York lawmakers said no legislation is in the works.
A Rangel aide said the House letter will reflect the fact that the makeup of each region has not changed enough to justify the new designations-or modified payment rates. "New Jersey doesn't gain that much," said Jon Sheiner, a Rangel spokesman. Most of the money taken from New York hospitals as a result of the change, he said, "ends up going into a national pool and spread across the whole country."
The Alabama Hospital Association's lawsuit seeks to recover the $261.7 million that hospitals in the three states are owed by HHS as a result of wage index policies, Blackmon said.
Under current regulations, HHS deems wages and related costs to constitute 71% of the CMS' estimate of the average cost per case; 60% is directly attributable to wages and 11% to "other" labor costs, according to background information in the lawsuit.
"The 71% factor grossly overstates the portion of the average cost per case incurred by hospitals that is attributable to wages," the lawsuit charges. "Moreover, CMS' decision to attribute 11% of the average cost per case to wage-related costs is arbitrary and unreasonable."