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Rule providing a windfall for Mass. hospitals targeted

WASHINGTON — The “Bay State boondoggle,” as a Medicare windfall to Massachusetts hospitals has come to be known by critics, may be seeing its last days.

Senator Tom Coburn, an Oklahoma Republican, and Senator Claire McCaskill, a Missouri Democrat, have introduced a bill that seeks to reverse a provision inserted into the 2009 health care reform law that benefitted Massachusetts hospitals to the tune of more than $250 million a year.

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The Coburn-McCaskill bill was filed last week following a Boston Globe story about arcane Medicare reimbursement rules that allow one tiny island hospital in Massachusetts, Nantucket Cottage Hospital, to raise the Medicare payment rates of the state’s 81 other hospitals at the expense of hospitals in most other states.

The bill takes aim at an amendment filed by then-Senator John Kerry, a Massachusetts Democrat, and Senator Robert Menendez, a New Jersey Democrat, that required Medicare reimbursements for hospital wages to come from a national pool of money instead of from a state pool. That meant Massachusetts’ gain would come at the expense of most other states.

“This provision unfairly benefits some states to the disadvantage of others, like Missouri,” said McCaskill in a statement issued last week. “It’s inefficient, and I’m happy to work in a bipartisan way to improve the health care reform law by repealing the provision.”

Since Kerry’s departure to head the State Department last week, it is uncertain whether Massachusetts has the legislative clout to defeat the bill. Freshman Senator Elizabeth Warren opposes the bill, according to her staff.

And Senator William “Mo” Cowan, who was just sworn in Thursday afternoon after being appointed to fill Kerry’s seat pending a special election, has already been in touch with Massachusetts hospitals to express his opposition and will vigorously fight its passage during upcoming debt negotiations, said an aide.

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The Kerry-Menendez amendment did not single out Massachusetts by name, but the Bay State emerged a winner, along with eight others, because of another Medicare rule saying a state’s urban hospitals must be reimbursed for wages at a rate no lower than its rural hospitals.

Given that Nantucket Cottage is the only rural hospital in Massachusetts, and because wages on the island are high due to its remote location and expensive cost of living, the rest of the state’s hospitals reap an annual bonus of between $256.6 million and $367 million, far exceeding any other state that also wins under this system.

Herb Kuhn, president of the Missouri Hospital Association, had previously told the Globe that Missouri hospitals lose $15.6 million a year as a result of the Kerry-Menendez amendment. Other states like Texas, New York, and Florida lose tens of millions each year in Medicare reimbursement funds.

Coburn called the policy a “payment earmark” and said his bill would “sunset this unjust provision.”

Following the Globe story in January, a coalition of 20 state hospital associations wrote to President Obama asking him to fix the provision in his health reform law that leads to the windfall for Massachusetts hospitals because of one island hospital’s outsized impact on national Medicare reimbursements.

Under the Coburn-McCaskill bill, states such as Massachusetts will be responsible for shouldering the expense of their own increased wages based on the rural rule, instead of draining the reimbursements of other states. A similar bill is expected to be filed in the House.

The Massachusetts Hospital Association and the state’s congressional delegation have said the Kerry-Menendez legislation corrected previous Medicare rule changes that cost Massachusetts hospitals hundreds of millions of dollars. The hospital association has said it is not opposed to reform, but the entire reimbursement system needs to be fixed — not just this one issue.

“The bill put forth by Senators Coburn and McCaskill seeks to unfairly single out one Medicare reimbursement adjustment among the huge number of modifications that are currently in place,” said Tim Gens, executive vice president of the Massachusetts Hospital Association, on Thursday.

“If this bill were to pass, all other adjustments would continue to be funded from a national pool of money that all hospitals across the country pay into, while the rural floor would be treated differently. There are sound reasons to fund adjustments nationally, first and foremost because it’s a more stable and fair basis on which to allocate funding.”

Tracy Jan can be reached at tjan@globe.com. Follow her on Twitter @GlobeTracyJan.
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