How a Massachusetts hospital's faulty data slashed Medicare payments statewide

Erroneous data submitted to CMS by one Massachusetts hospital caused 39 hospitals across the state to lose an estimated $115 million in 2017.

CMS uses area wage indexes to adjust Medicare payments to reflect local labor costs. The agency calculates new wage indexes each year using wage data submitted by hospitals. Under federal law, the wage index value for urban hospitals can't be lower than the wage index for rural hospitals in the same state. This is known as the "rural floor."

Nantucket Cottage Hospital is the only rural hospital in Massachusetts. Accordingly, the hospital sets the rural floor for all hospitals in the state. The data Nantucket submitted to CMS to calculate the 2017 wage index contained errors that deflated the hospital's hourly wage rate. In April 2016, roughly seven months after the deadline to request revisions to the wage data had passed, the hospital notified CMS of the errors and asked to correct them. By correcting the errors, officials estimated the hospital's hourly wage rate would increase from $43.78 to $60.50. 

Before responding to Nantucket's request, CMS published the proposed wage index for 2017. Several Massachusetts hospitals submitted comments on the proposed rule urging CMS to accept Nantucket's corrected wage data because failure to do so would result in hospitals across the state losing an estimated $115 million in 2017. Ultimately, CMS enforced the deadline for corrections and refused to accept Nantucket's revised data.

In an attempt to avoid significant payment cuts, four hospitals owned by Springfield, Mass.-based Baystate Health filed a complaint in district court. Baystate argued that the final rule from CMS was arbitrary and capricious for several reasons, including because Nantucket's erroneous data affected the wage index for every other Massachusetts hospital, but those hospitals didn't get to review or contest the flawed data until after the deadline to request revisions had passed. Baystate estimated it would lose more than $19 million in Medicare reimbursements due to the use of the erroneous data.  

The district court granted summary judgement in favor of HHS, holding that the final rule was not arbitrary and capricious. Baystate filed an appeal.

On Feb. 11, the District of Columbia federal appeals court affirmed the lower court's decision, holding that the secretary of HHS had the authority to enforce the deadline for submitting data revisions. 

"As noted previously, had the Secretary [of HHS] accepted the revised data to calculate the final wage index, he would have been required to return to the beginning of the wage index development process to ensure the accuracy of the hospital's data," states the opinion. "Allowing the Secretary to enforce the deadline for revising data is thus consistent with our decisions permitting the Secretary to balance accuracy against finality and efficiency. To hold otherwise would effectively render the Secretary's deadline a nullity because he would be required to waive compliance with the deadline anytime a hospital submitted revised data, even well after the relevant deadline passed."

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