Selected hospitals and systems stand to lose millions of dollars under a provision of the Medicare Modernization Act of 2003 thats set to expire in September.
After having a special Medicare wage index reclassification extended this spring, hospitals and systems that qualified are angling to have it extended once again. Without such an extension of the provision, found in Section 508 of the MMA, theyll lose access to what started out as a $900 million fund that boosts qualifying hospitals Medicare reimbursement. The provision allows selected hospitals to move to a higher wage index area, making it easier to cover the cost of caring for their Medicare patients, said Don May, vice president of policy with the American Hospital Association.
Executives for hospitals and systems say that losing that extra Medicare reimbursement under Section 508 would be devastating. Layoffs and cutbacks would likely occur at St. Lukes Cornwall Hospital, said Allan Atzrott, president and CEO of the 282-bed hospital, which has campuses in Cornwall and Newburgh, N.Y.
St. Lukes, like other Section 508 hospitals, qualified for the extra money because it is close enough to an urban areain this case New Yorkthat the provision assumes the hospital must pay the higher wages demanded in a large city. Once the payments expire, however, St. Lukes will be short $5 million a year, a substantial amount for a hospital system with a $170 million annual budget, Atzrott said. Well still have a union contract and we cant reduce our wages, he said. What do you do when the money disappears? Do you close your mental-health unit, your dialysis program? Layoffs are another possibility, he added.
Theres no clear sign, though, that Congress will act to renew the reclassification. Some lawmakers from Atzrotts state, such as Sen. Chuck Schumer (D-N.Y.) and Rep. Maurice Hinchey (D-N.Y.), are interested in helping the Section 508 hospitals. But theres been no legislative solution yet, Atzrott said.
Nobody knows what Congress is going to do, although there seems to be more yeas than nays on this issue on Capitol Hill, said Ted Giovanis, a healthcare consultant in Columbia, Md. Well know more in the House maybe after July 4 recess, he said. May said the Section 508 issue is part of the AHAs legislative agenda for this year.
Under Section 508, hospitals that do not meet the general criteria for reclassification set by the Medicare Geographic Classification Review Board may appeal the wage index classification and be reclassified to a nearby area, provided it meets certain criteria. Once reclassification is granted, the wage index for the new area is used to calculate Medicares payment for inpatient and outpatient services provided by the hospital.
The CMS reports there are 109 providers qualifying under Section 508. Many are in Connecticut, Michigan, New York, New Jersey, Pennsylvania and South Dakota. State hospital associations in California, Wisconsin and Texas reported very few or no cases of hospital reclassification under Section 508.
Unlike most reclassifications, which are done in a budget-neutral manner, Section 508 was implemented with an additional
$900 million in special funding under the MMA. This money, however, was limited to a three-year period and was set to expire March 31, but Congress extended the special reclassification through Sept. 30 by way of the Tax Relief and Health Care Act of 2006. A CMS spokesman said the money for the fund had run out, but that Congress funded an additional $100 million when it extended the 508 reclassifications until Sept. 30. Short of further congressional action, Section 508 hospitals will no longer receive these payments after Sept. 30. The terms of the expiration were outlined in the CMS fiscal 2008 proposed rule for hospital inpatient payments (April 23, p. 8). Hospitals that were reclassified under Section 508 will still receive Medicare payments, but their payments will just be based on their geographic classification without the Section 508 adjustment, a CMS spokeswoman said.
St. Lukes campuses were just two of six providers in Orange County, N.Y., that had been reclassified to the New York wage index area under Section 508. The move was a boon for St. Lukes, which had been hemorrhaging financially, Atzrott said.
The hospital system had been getting reimbursed at 75% to 80% of the national average under its original classification in Newburgh, N.Y. St. Lukes benefited immediately from the areas higher Medicare rate and was soon getting reimbursed at 120% of the national average. The hospital system has a union contract that originated in Manhattan, and the higher wage index enabled St. Lukes to pay its employees wages competitive with New York.