Hospitals seek payment hike

Posted March 05, 2010, at 7:20 p.m.

Serving one of the oldest populations in the country, Maine hospitals say they are losing an unsustainable amount of money from the federal Medicare program for senior citizens. And they are looking to the state’s congressional delegation to make things right.

When a Medicare patient is admitted to Eastern Maine Medical Center in Bangor, the hospital is paid a flat rate based on the patient’s diagnosis. But if the same patient with the same diagnosis were treated at a hospital just four hours south in Boston, that payment would be significantly greater.

Maine has the second-lowest Medicare hospital reimbursement rates in the nation, according to a recent analysis by the American Hospital Association. Maine hospitals are paid, on average, 79 cents for every dollar of cost they incur in delivering Medicare services, compared to a national rate of 90.6 cents on the dollar, ac-cording to Maine Hospital Association President Steven Michaud.

Michaud said the American Hospital Association analysis is not publicly available and he could not disclose which state is the lowest- or highest-paid by Medicare.

But the direct result of Maine’s low rate, Michaud said, is a net loss to Maine hospitals — $142 million in 2007 alone. Maine hospitals now derive about 40 percent of their revenue from Medicare, he said.

At 411-bed EMMC, the Medicare loss in 2007 totaled $22.6 million, according to Dan Coffey, chief financial officer for Eastern Maine Healthcare Systems, the hospital’s Brewer-based corporate parent. Across the seven-hospital EMHS system, he said, the Medicare loss in 2007 was $37.2 million.

“How are we ever going to stay in business if we can’t break even on our government programs?” Coffey asked.

To make up for their Medicare shortfall, hospitals charge more to private insurance companies and to people who pay out of pocket for the care they receive. This “cost-shifting,” in turn, feeds the unsustainable upward spiral of insurance premiums and the cost of health care services.

The ‘wage index’

The Medicare program is administered by the Centers for Medicare and Medicaid Services, or CMS. Ellen Griffith, a CMS spokeswoman in Washington, D.C., said Thursday that there is no valid state-by-state comparison of Medicare rates.

“Everybody says their payments are inadequate,” she said, but the payment formula includes a range of adjustments to ensure equity between major teaching hospitals and the smallest rural facilities.

The system for determining how much Medicare will pay a given hospital is a complex one, making it difficult to draw apples-to-apples comparisons between hospitals within any given state and from state to state. The diagnosis-based formula is influenced by factors such as whether the hospital is a teaching facility, how many acute-care beds it has, whether it is in a rural or urban area, and more. But a primary influence is the “wage index” — what hospitals typically pay their employees.

“Wages and salaries account for most of the cost of services,” Michaud said. The Medicare wage index system, set up in 1983, chronically undercompensates hospitals in rural states such as Maine that pay lower wages overall but must compete nationally for high-caliber professionals in nearby urban centers, he said.

That means that although larger Maine hospitals such as EMMC must offer nursing wages, for example, that are comparable to those paid in Boston, Medicare reimbursement here reflects a lower wage average and a lower hospital payment.

For example, Michaud said, a Medicare patient admitted for a heart valve replacement in Boston would generate a Medicare payment of $44,747, whereas the same admission in Portland would bring in just $35,657. A patient needing a gallbladder removal would generate about $19,400 in Boston but only $13,624 in Portland, he said.

Maine hospitals see two ways to fix this inequity. One is to overhaul the bureaucratic Medicare reimbursement formula so that it more accurately reflects the cost of providing services and compensates accordingly. This could include adjusting the calculation of the wage-scale index as well as a new focus on paying hospitals more for providing high-quality care with a minimum of complications instead of using the current flat-rate diagnostic basis.

In this scenario, Maine would see a big revenue boost, Michaud said.

“Maine hospitals are always in the top five [among states] in terms of quality, efficiency and patient satisfaction,” he said, citing data compiled by the Medicare program itself.

Another solution is more political and probably quicker. Some regions, such as Manchester, N.H., have persuaded their congressional delegations to petition for Medicare “reclassification” — that is, tying their Medicare reimbursement rates to a higher-cost urban market such as Boston. In Manchester, Michaud said, a heart valve replacement would generate Medicare hospital revenues of $43,417, and a gallbladder removal $18,869 — much closer to the Boston rate than to the Portland rate.

Lobbying for change

Maine’s congressional representatives say they support efforts to boost Medicare payments to hospitals. Rep. Michael Michaud made political hay last fall during the House health care reform debate by drawing President Barack Obama’s attention to the possibility of reclassifying Maine to the Boston market rate before Michaud signed on to the contentious House reform bill.

This week, Michaud said the uncertain reform effort pending in Congress offers little by way of Medicare relief to Maine hospitals.

“Regardless of what happens with health insurance reform, this issue needs to be addressed,” he said in an e-mailed statement. “I continue to hear from providers in Maine that are disadvantaged by the current Medicare reimbursement rate system. The approach that I have advocated would treat our state’s providers more fairly and help preserve access to quality health care for Mainers.”

Sen. Susan Collins, who highlighted the need for Medicare payment reform during her initial Senate campaign in 1996, said she continues to lobby for change.

The Medicare reimbursement formula “favors urban areas,” she said in a telephone interview on Thursday. “This has been a great source of frustration for many years for Maine hospitals.”

Like Rep. Michaud, Collins said she would support reclassification as a quick fix. But that doesn’t get at the underlying problem, she added.

Elements of payment reform are contained in the Senate version of the health reform legislation, she said, but not enough to effect the level of change that is needed.

“The answer is to reform the entire Medicare system, not just create a new set of carve-outs,” Collins said, adding that the parliamentary reconciliation process likely to be employed to gain passage of the bill precludes significant amendment.

Steve Michaud at the Maine Hospital Association said the health reform package makes significant cuts to Medicare without the assurance of cost savings elsewhere in the medical system.

“Unless they do payment reform, too, we’re only sinking deeper into the tank,” he said.

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