“It’s shocking to see how horrible this policy is,” he said.
The wage index is one part of a formula used to determine the Medicare payments hospitals receive when they care for patients who have insurance through the program. The index is tied to the amount of money hospitals spend on labor, which means hospitals in rural parts of the country, which generally spend less on wages than their urban counterparts, typically receive less funding than hospitals in urban areas.
“The wage index has been a long-running problem for rural and non-urban hospitals,” Levine said. “Basically, it’s taking resources out of non-urban communities and sending them to hospitals that have higher costs.”
Even though Ballad Health has increased nursing wages every year for the past several years, Levine said, the region’s index has continued to decline.
Now, the Centers for Medicare & Medicaid Services is pursuing a rule change designed to bridge the gap between rural and urban hospitals, changing how the index is calculated to increase funding for facilities with low indexes at the expense of those with high indexes.
Under the proposed rule change, hospitals in areas below the 25th percentile, which includes all hospitals in the Ballad Health system, would experience a wage index increase, meaning they would receive more funding, while hospitals above the 75th percentile would experience an index decrease, curtailing their funding and thereby ensuring that Medicare spending does not go up as a result of the proposal. The changes would be in place for at least four years.
“I won’t say it totally fixes it, but it goes a long way towards helping reduce the variation,” Levine said.
Since 2012, there have been 13 hospital closures in the state, according to the Tennessee Hospital Association. Ten of those were rural hospitals.
Craig Becker, the president and CEO of the Tennessee Hospital Association, said tepid funding resulting from the Medicare wage index contributed to those closures but noted that it was one of several factors. “It’s kind of a death by a thousand cuts,” he said.
The index does, however, present a particular problem for East Tennessee, a region that Becker said was particularly hard hit by the decline in funding over the past couple of years.
Becker said one factor contributing to the disparity is the fact that nurses in Tennessee don’t receive pay increases at the same level as those in states like New York or California. “It’s not like we’re not giving out raises or lowering what we pay people, but rather we don’t do it as fast as they do,” Becker said. The association is encouraging hospitals across the state to invest at least a portion of the new funding in salaries.
Levine estimates that about 50% of the Ballad Health’s payer mix is from Medicare. “We have a very high mix of government payers here,” he said, “and that mix is influenced heavily by the wage index.”
In testimony he delivered to the U.S. Senate’s subcommittee on primary health and retirement security on Sept. 25, 2018, Levine said the region has an index of 0.72. In contrast, he said, there are some areas of the country that have an index of about 1.9. Levine said this means there’s oftentimes a large gap, a difference of upwards of thousands of dollars, that hospitals with opposing indexes receive for the same procedure.
Most counties in the U.S., Levine said, have an index lower than 1.0, which is supposed to be the average across all regions in the country.
“By definition, if you have an index of 1.0 and that’s supposed to be the average, 50% should be above the average and 50% should be below the average,” Levine said on Thursday. In 2018, Levine said only 10% of hospitals in the country had an index higher than 1.0.
Levine said Ballad Health had an operating margin of 0.6 percent in 2018, equal to $12 million. He said putting in place a national floor of 0.87, a change that was proposed under a 2017 bill co-sponsored by Sen. Lamar Alexander, R-Tenn., would produce an extra $30 million annually for the system.
House Rep. Phil Roe, R-Tenn., believes the Medicare wage index was started with good intentions. Because it’s more expensive to locate a hospital in a heavily urbanized place like downtown New York than a more rural area like Erwin, Roe said using this formula to determine Medicare spending made sense. “Then politicians got involved in it, and it made even less sense,” Roe said.
Actions by government officials, Levine said, have continued to deepen this divide. Both Roe and Levine pointed to an adjustment approved during the passage of the Affordable Care Act that established an index floor of 1.0 for North Dakota, South Dakota, Montana, Wyoming and Nevada. To pay for the change, Levine said hospitals below 1.0 experienced decreases in their wage indexes.
Roe said rural parts of the country are just asking to be treated fairly. “I’ve been screaming this to the top of my lungs for years now, and finally I feel like Moses in the desert,” he said. “I finally see the Promised Land.”