Layoffs and other cutbacks have begun at hospitals that are no longer able to take advantage of a special wage-index reclassification that boosts Medicare reimbursement through Section 508 of the Medicare Modernization Act of 2003.
Hospitals that benefited from the Section 508 provision were shifted into a higher wage-index area, an adjustment that ended Sept. 30. Those hospitals are hoping Congress will grant another extension to the program before year-end, but in the meantime some are already cutting back.
“This is a big hit,” said Jacquelyn Gaines, president and chief executive officer of Mercy Health Partners, which includes 245-bed Mercy Hospital in Scranton, and Mercy Special Care Hospital in Nanticoke, a long-term acute-care facility, and other free-standing facilities.
Section 508 enabled hospitals that did not meet the general criteria for wage-index reclassification to appeal the classification and be reclassified to a nearby area, provided it met certain criteria. Once reclassification was granted by what is called the Medicare Geographic Classification Review Board, the wage index for the new area, with higher wages, was used to calculate Medicare’s payment for inpatient and outpatient services the hospital provided.
The program was implemented with an additional $900 million in special funding under the Medicare Modernization Act and was limited to a three-year period. Originally set to expire March 31, Congress extended the special reclassification for another few months by way of the Tax Relief and Health Care Act of 2006.
With the program expiration Sept. 30, reimbursements fell for hospitals that qualified. “All of them are hurting,” said Columbia, Md.-based healthcare consultant Ted Giovanis, of the hospitals that lost their Section 508 funding. “There’s still a strong expectation that this will still get funded by Congress.”
Some hospitals, though, have begun to cut staff as a result of the lost revenue. Allan Atzrott, president and CEO of 260-bed St. Luke’s Cornwall (N.Y.) Hospital, predicted earlier this year that layoffs would result and they now are becoming a reality.
Since the program’s expiration, the hospital, which has campuses in Cornwall and Newburgh, N.Y., had to switch back to its original wage-index classification in Newburgh from New York City’s classification. Under the re-designation, the hospital has taken a 22% cut in its wage index, and receives $450,000 per month less for its Medicare patients, Atzrott said.
Similarly, all 13 of the hospitals in northeastern Pennsylvania are targeted to lose $48 million annually with the loss of the program, according to Mercy’s Gaines. Of that amount, Mercy Hospital alone will lose approximately $6.2 million “because we have a disproportionate share of Medicare patients,” Gaines said. “We know for a fact we’re going to operate at a loss even this year.”
It’s possible that Congress will vote on legislation this year to extend this program. Sen. Chuck Schumer (D-N.Y.) and Rep. Maurice Hinchey (D-N.Y.) have shown an interest in helping the Section 508 hospitals, as well as Rep. Charles Rangel (D-N.Y.), who chairs the House Ways and Means Committee, Atzrott said.
A spokesman for Hinchey said the congressman would be pushing to make the Section 508 payments retroactive to Oct. 1. The House, which approved its own Medicare package this summer and included the two-year extension of the Section 508 program, is waiting on the Senate to move on its own bill, the spokesman said. The Senate is expected to draft a Medicare bill sometime this week. Giovanis speculated that such a provision may possibly get rolled into a larger omnibus appropriations package by year’s end.
The CMS reports there were 109 providers that originally qualified under Section 508. Many are in Connecticut, Michigan, New Jersey, New York, Pennsylvania and South Dakota. With the expiration of the program, Section 508 hospitals will either be subject to their actual geographic area or reclassified to an area they would have been moved to under the traditional rules for hospital wage index classification. According to a CMS chart, 58 providers have been able to seek a reclassification under the traditional process in 2008, “which may or may not have the same benefits as their 508 benefit,” Giovanis said.
