Struggling hospitals in Tennessee hurt by flawed federal Medicare reimbursement formula
(NASHVILLE, Tenn.), February 28, 2019 – A resolution asking the federal government to change the flawed reimbursement formula currently paid to Tennessee hospitals for Medicare patients was approved by the full Senate on Thursday. Enactment of a fair reimbursement rate would help struggling hospitals in Tennessee which receive disproportionately low payments compared to other areas of the country for the same services. Reimbursements in the state are among the lowest in the country.
Senate Joint Resolution 98 asks Tennessee’s representatives in Congress and the U.S. Department of Health to fix the flawed formula, which is critical to the state’s healthcare system.
While the original goal of the Medicare wage index was to reflect variations in the country’s labor markets, the formula has been manipulated with a multitude of exceptions and political fixes. This has resulted in California and New York having some of the highest reimbursement rates due to the number of representatives and the influence they have in Congress. Tennessee hospitals may receive as little as half of the reimbursement received by their counterparts in these larger states.
The formula, which is unnecessarily complex, also has inconsistencies in data collection, resulting in labor costs at Tennessee hospitals being inaccurately reflected in the current wage index. A 2018 U. S. Office of Inspector General Report identified significant vulnerabilities in the wage index and recommended an overhaul of the system. The report pointed out that the federal government lacks authority to penalize hospitals that submit inaccurate wage data and that Medicare’s administrative contractors’ limited reviews don’t always detect inaccuracies.
In addition, when the Affordable Care Act mandated that the wage index must be budget-neutral, an action which widened the disparity between hospitals with the lowest and highest reimbursement rates.
The wage index formula also has an effect on private insurance contracts which are negotiated on a coefficient of the amount paid for healthcare services by Medicare. The resolution calls for a revision in the Medicare Wage Index in a manner that more accurately reflects labor costs in Tennessee.