How Partners HealthCare's errors altered Medicare payments nationwide

Fifty-six Massachusetts hospitals received Medicare overpayments and hospitals across the nation received underpayments because Boston-based Partners HealthCare submitted incorrect wage and cost data for 19-bed Nantucket (Mass.) Cottage Hospital, according to a recent report from HHS' Office of Inspector General.

Medicare payments to hospitals are adjusted annually based on a rural wage index that CMS calculates for each state using local hospital worker wages and labor costs. To calculate wage indexes, CMS uses hospital wage data collected four years prior to allow time for the collection of cost report data from all hospitals paid under the Inpatient Prospective Payment System and to give Medicare administrative contractors time to review the data. Federal law requires Medicare to reimburse a state's urban hospitals at least at the baseline rate set by rural hospitals in the state. Nantucket Cottage Hospital typically sets the floor in Massachusetts because it is the only hospital in the state classified as rural.

The OIG began an audit of Nantucket Cottage Hospital's fiscal year 2011 wage data in February 2015. The OIG said it selected the hospital for review because its FY 2011 wage data set Massachusetts' rural floor wage index for 2015.  

According to the OIG's report detailing its audit findings, the FY 2011 cost report Partners HealthCare submitted for Nantucket Cottage Hospital contained errors. The erroneous data was used to set payment rates for Massachusetts hospitals in 2015, which resulted in Medicare overpaying 56 hospitals across the state by $136.6 million, according to the OIG report.

The ACA requires the rural wage index to be budget neutral on a national level. Therefore, "the overpayments to Massachusetts hospitals caused underpayments to hospitals in other states," according to the OIG.

In written comments to the OIG's draft report, Partners HealthCare "strongly" objected to the OIG reporting the effect of Nantucket Cottage Hospital's errors on other hospitals. "The inclusion of the impact on the other hospitals in the OIG's findings strongly implies that the hospital is somehow responsible for payments to other hospitals in addition to the payments it receives for services rendered to Medicare beneficiaries. It is not," wrote Partners.

After reviewing the hospital's comment, the OIG maintained that it was appropriate to report on the effect of Nantucket Cottage Hospital's errors. 

On Wednesday, a spokesman for Partners told Becker's, the system disagrees with the OIG's major findings. "It is important to note that standard CMS audit process did not find Nantucket Cottage Hospital's 2011 data submission to be incorrect. The OIG is imposing a new interpretation of the cost reporting instructions, particularly in areas that include the calculation of housing costs for employees. We are working with CMS to make our position on these matters clear," said the spokesman for Partners.

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