News & Events Medicare gives state hospitals $275m lift

Medicare gives state hospitals $275m lift

Other regions rip change in rules

By Liz Kowalczyk

Globe Staff / August 5, 2011

Massachusetts hospitals will get $275 million more a year in Medicare payments because of a provision inserted into the nation’s new health care law that benefits the state, angering hospitals across the country that will get less money as a result.

Medicare adopted the change last week, as required by an amendment to the health care law cosponsored by Senator John F. Kerry, a Massachusetts Democrat.

The amendment essentially requires Medicare to reimburse all Massachusetts hospitals for employee wages at least the same rate that it reimburses Nantucket Cottage Hospital, a windfall that Partners HealthCare set in motion in 2007, when the Nantucket hospital became its subsidiary. Wages on the island are hefty because of its isolated location and high cost of living.

“You have this small hospital, sitting on an island in the Atlantic Ocean, having a profound impact on hospital payments across the country,’’ said Herb Kuhn, president of the Missouri Hospital Association.

Kerry’s amendment requires that the money for Medicare hospital wage reimbursements be a fixed amount nationally, rather than a fixed amount for each state, meaning that any increase for Massachusetts requires a decrease for other states.

Kuhn called it an example of “Yankee ingenuity’’ in a column he wrote last week for his association newsletter. Steve Brenton, president of the Wisconsin Hospital Association, said he is “extremely upset’’ that Massachusetts engineered “a money grab’’ won through “political hardball.’’

Kerry, who cosponsored the amendment with Senator Robert Menendez, a Democrat from New Jersey, defended the provision yesterday. He said that when the Centers for Medicare & Medicaid Services previously changed its wage reimbursement rules five years ago, it hurt Massachusetts. The state, he said, is making up lost ground.

“The rest of the country gained at our expense, and Massachusetts took a big hit,’’ he said in a statement. “These new rules just provide some correction.’’

Timothy Gens, executive vice president of the Massachusetts Hospital Association, said the state’s hospitals “lost hundreds of millions of dollars’’ and “we didn’t criticize other states’’ then.

Kerry and Gens also pointed out that, despite criticism from some other hospitals, the American Hospital Association – as well as hospitals in New Jersey, Connecticut, and California – supported the amendment to the Affordable Care Act, which will extend health insurance to most Americans. The Associated Press, which first reported on the provision yesterday, said six other states also come out ahead, although none do as well as Massachusetts.

Medicare has a rule saying that a state’s urban hospitals must be reimbursed for wages at least as much as rural hospitals. Wages are one component of the payment a hospital gets for Medicare patients.

In 2008, Nantucket, which had previously been paid under a different system, converted back to the rural hospital payment system, with the help of Partners.

Nantucket became the only hospital in the state paid under the rural system, so under the Medicare rules its wages set the floor for reimbursing all Massachusetts hospitals.

Massachusetts hospitals were aware that the switch could lead to a financial bonus.

On its website, in a statement prepared at the time, Nantucket Hospital said: “If this change back to rural status occurs, it would provide a financial benefit for all hospitals in Massachusetts because the state’s Medicare reimbursement rate would increase, and MGH and other Partners facilities would be among the many hospitals in the state that could realize greater reimbursements.’’

It went on to say that while the switch would decrease its Medicare reimbursement, the affiliation agreements between Massachusetts General Hospital, a Partners member, and Nantucket “ensure that the MGH and Partners would provide the funds that would make us whole.’’

“It’s a win-win for all hospitals in Massachusetts to make such a switch,’’ the statement said.

Partners Spokesman Rich Copp said yesterday that recent calculations show that Partners stands to gain $40 million to $50 million. Partners did not affiliate with Nantucket because of the potential Medicare windfall, he said, but because of the longtime relationship between the hospital and Mass. General and to improve clinical services on the island for patients.

Under Medicare rules, the new rural payment designation for Nantucket does not begin until October. Medicare, however, apparently saw this windfall for Massachusetts on the horizon and made a new rule in 2009 designed to keep any one state from cashing in on the change. Kerry’s amendment reversed that rule.

“What I am outraged about is that my hospitals in communities like La Crosse, Green Bay, and Madison and smaller communities like Watertown are going to pay for the calculated manipulation of this wage index,’’ Brenton said.

He said Wisconsin hospitals will lose $7 million a year due to changes in the wage index, on top of other Medicare payment cuts expected to pay for expanded coverage for Americans.

“This was a hardball political effort, and others can play that game going forward,’’ Brenton said.

Massachusetts hospitals estimate they will lose $5.3 billion over 10 years under the broad cuts.

Alan Sager, professor at Boston University School of Public Health, agreed that the state could face retribution. In Medicare financing, “if some people gain money, other people suffer from reductions in money,’’ he said. “There’s payback, and Massachusetts hospitals can count on other states and their senators and representatives paying us back.’’

Medicare and the Institute of Medicine, an independent advisory organization, are both working on recommendations for reforming Medicare’s system for reimbursing hospital wages. That means the increase coming to Massachusetts hospitals this October may not be permanent.

Chelsea Conaboy of the Globe staff contributed to this report. Liz Kowalczyk can be reached at

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