lynn nicholas

A threat to Mass. Medicare funds

In Washington, there’s an effort led by Republican Representative Kevin Brady of Texas to amend the Affordable Care Act by reducing Medicare funding for select states, including Massachusetts. There is a similar bill in the Senate. Massachusetts hospitals stand to lose more than $200 million as they struggle to make investments necessary for coordinated and accountable care.

The issue involves the obscure and complex area wage index — a factor in Medicare’s payment formula that recognizes that labor costs differ across the country. Proponents of Brady’s scheme are taking advantage of that complexity to promote misguided policy changes that would harm Massachusetts and several other states while masquerading as reform of a broken system.

Suddenly reducing millions of dollars in Medicare payments to Massachusetts hospitals on top of the over $7.3 billion in Medicare cuts over 10 years that they already face due to the Affordable Care Act, sequestration, and other changes, is the last thing that our hospitals need. Even with the additional Medicare funding the state has received over the past two years, nearly a third of hospitals in the state were operating in the red — and the change sought by Brady’s approach will affect hospital services, jobs in the Commonwealth, and needed investments to implement reform.


Here is how the system works. The Centers for Medicare and Medicaid Services, which administers Medicare, draws funding for adjustments to its payment formula from a national hospital pool. The agency took an unprecedented action in 2009 and 2010, one that was largely opposed by hospitals across the country: It changed the funding for just one adjustment to the wage index, the “rural floor,” from “nationwide” budget neutrality to “within-state” neutrality. It decided that increased funding to any state due to the rural floor would be drawn from within the state itself — in other words, it would be a zero-sum game within the state. Yet all the other adjustments continued to be spread across all hospitals nationally.

Get Today's Headlines in your inbox:
The day's top stories delivered every morning.
Thank you for signing up! Sign up for more newsletters here

Thanks to the efforts of the Massachusetts congressional delegation and of a coalition of other state delegations, this action was reversed by a provision in the Affordable Care Act, which merely instructed the Centers for Medicare and Medicaid Services to be consistent and use nationwide neutrality for the rural floor as it always had, and as it does with all other similar adjustments. It wasn’t a “boondoggle,” as some critics have suggested. While this benefited Massachusetts and eight other states, similar Medicare adjustments that benefit a third of the nation’s hospitals — such as geographic reclassifications — cost Massachusetts and other states.

Redistribution and the Medicare wage index system are indeed obscure and complex, and comprehensive reform is needed. That is why our congressional delegation, the American Hospital Association, and the Massachusetts Hospital Association support systemic reform of the entire wage index system.

The wage index is recalculated annually and so the benefits and losses change continuously. In fact, the current benefit to Massachusetts from the rural floor has declined steadily since it took effect in 2012 and is scheduled to decline further.

Bottom line: The bills in Congress are not “reforms” by any measure. They simply shift the benefit of one particular Medicare adjustment from some states to others, while leaving every other wage adjustment unchanged. We need to ensure that the state’s health care system is not harmed by discriminatory action disguised as reform.

Lynn Nicholas is president and CEO of the Massachusetts Hospital Association.