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From Health Law Daily, August 17, 2015

HHS’ handling of multi-campus hospitals for wage index calculations ‘reasonable’

By Kayla R. Bryant, J.D.

HHS’ decision to treat a multi-campus hospital straddling two geographic regions as residing in the location of its main campus for the purposes of calculating wage indices was reasonable. The U.S. Court of Appeals for the District of Columbia Circuit upheld the decision, which was disputed by Southcoast Hospital Group (Southcoast) and other providers after Southcoast’s wages for campuses in a lower-paid area were factored into the index where its principal campus was located. Although decision this lowered Southcoast and other hospitals’ reimbursements for fiscal years (FY) 2006 and 2007, HHS’ actions followed the typical treatment of multi-campus hospital groups and a new computational method could not be easily developed in 2006 or applied retroactively (Anna Jacques Hospital v. Burwell, August 14, 2015, Millett, P.).

Providers. Southcoast was formed after the merger of three hospitals in southeastern Massachusetts. It operates under a single provider number. All of its campuses were in the Boston-Quincy geographic area until FY 2005, when the geographic boundaries were changed and two of the hospitals fell into the Providence area. Southcoast, along with 41 other provider hospitals from Massachusetts, Rhode Island, and Vermont, filed a complaint with the Provider Reimbursement Review Board (PRRB) challenging the inclusion of Southcoast’s wage data in the Boston-Quincy wage index. The PRRB decided that it lacked authority over the matter and allowed the case to proceed to judicial review. The complaint, filed in D.C. district court, alleged that the inclusion of Southcoast’s wage data in this region violated the requirement that the index reflect the relative wage level in the geographic area of the hospital. The district court granted summary judgment in favor of HHS, holding that 42 U.S.C. §1395ww(d)(3)(E)(i) leaves the wage index calculation up to the agency.

Wage index. Hospitals are paid for inpatient services provided to Medicare beneficiaries under the prospective payment system (PPS) formula, regardless of actual costs incurred. The payment rates are calculated according to the average cost of treating particular diagnoses, although they are adjusted based on wage differences. HHS is required to establish a factor reflecting the wage level of the hospital’s geographic area compared to the national average under §1395ww, commonly known as the wage index. HHS collects annual cost reports from hospitals in order to update the wage index.

Multi-campus hospitals. Multi-campus hospitals operate as an organization with multiple facilities. These organizations often form following a merger or joint venture, and, if extensively integrated, the hospital is certified by CMS to operate as a single institution, and the main campus’s provider number is used by all facilities. If not, they are treated as free-standing facilities with different provider numbers and must submit their own cost reports.

Geographic area. Prior to FY 2005, hospitals were assigned geographic regions according to the Office of Management and Budget’s (OBM) Metropolitan Statistical Areas (MSAs). The OBM announced that it would switch to a new system known as Core-Based Statistical Areas, which HHS decided to adopt for the purposes of calculating wage indices. HHS implemented some transitional to mitigate the effects of the change, and during this time also considered several possibilities for handling the problem of wage index data for campuses spread across multiple wage index areas.

Reasonableness test. The appeals court found that HHS did not violate any statutory duty in relying on Southcoast’s consolidated cost report for FY 2006 and 2007. The Medicare Act affords the agency significant discretion in calculating the wage index. Additionally, HHS’ reliance on Southcoast’s unified wage data to calculate the hourly wage in the region was reasonable and not arbitrary and capricious. During this transitional period, the appeals court noted that HHS effectively decided that it was not prepared to calculate the wage index based on campus-specific data, and would therefore treat Southcoast as if it resided in the geographic area of the main campus. The court found that HHS provided adequate explanations for its actions during this transition period.

The case is No. 14-5125.

Attorneys: N. Kent Smith (Hall, Render, Killian, Heath & Lyman) for Anna Jacques Hospital, Berkshire Medical Center, Beth Israel Deaconess Medical Center, Beth Israel Deaconess Hospital – Needham and Beth Israel Deaconess Hospital – Milton. Katherine T. Allen, U.S. Department of Justice, for Sylvia Mathews Burwell.

Companies: Anna Jacques Hospital; Berkshire Medical Center; Beth Israel Deaconess Medical Center; Beth Israel Deaconess Hospital – Needham; Beth Israel Deaconess Hospital – Milton

MainStory: TopStory ProviderNews PartANews CMSNews IPPSNews OPPSNews

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