21 States Demand Extinction of Massachusetts' Rural Hospital Medicare Loophole

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A tiny 19-bed island hospital in Nantucket, Mass., has caused ire among 21 other states for allowing all other Massachusetts hospitals to benefit from extra Medicare money at other states' expense, and those states want legislation to rectify the matter, according to a report by the Boston Globe.

Medicare adjusts payments to hospitals and other providers based on where they are located geographically. In essence, rural hospitals set the floor for Medicare payments within a state, as urban hospitals must be paid at least as much as rural hospitals for wages paid to physicians and staff. A July report from the Institute of Medicine found this system lacked "accuracy" and needed several changes.

Nantucket Cottage Hospital, owned by Boston-based Partners HealthCare, is located on an island where property values exceed $1 million. It pays above-average wages in an area with high living costs, but because it is the only rural hospital in Massachusetts, it sets minimum wages for the 81 other hospitals across the state due to Medicare's geographic payment adjustments.

For Massachusetts, that has led to an extra $256.6 million and $367 million annually in Medicare funding over the past two years — at the expense of other states, according to the report.

Nine states, including Massachusetts and California, are paid the extra Medicare money out of a national pool by decreasing payments to other states as part of an amendment enacted in 2011 to the national health law. According to the report, Texas, New York, Michigan, Florida and Illinois are hurt the most by the rural funding structure at the cost of tens of millions each year.

The American Hospital Association and CMS have pointed out flaws in the payment structure, and 21 states are urging Congress to change the payment model in February during discussions on the federal debt ceiling, according to the report.

More Articles on Medicare Geographic Adjustments:

MedPAC's October Meeting: 4 Things to Know
IOM: Health Technology Can Help Reduce Widespread Inefficiencies, Costs
IOM: Medicare Geographic Adjustments Could Improve Payment Accuracy

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