Replace ‘Bay State boondoggle’ with cost-based payments

Since 2010, Massachusetts hospitals have benefited from an annual bonus in Medicare funding of at least $250 million. Congress is expected to vote to eliminate this windfall in early June, a blow to local hospitals, which may face layoffs and cuts in patient care as a result. But as the system is set up now, the state receives these funds due to a loophole in the national health reform law and at the expense of at least 40 other states. It’s time to find a more sustainable and equitable way to support top-notch medical care.

Critics like to refer to the payments as the “Bay State boondoggle.” Former senator John Kerry lobbied hard for the Medicare provision, an amendment to the Affordable Care Act, which he and others have defended as a fix to previous payment rules that reduced reimbursements to Massachusetts hospitals. Nine states came out ahead, but none did as well as Massachusetts — runner-up California has received less than half as much.

The provision requires that wages paid to doctors and staff at a state’s urban medical centers must be reimbursed at least as much as its rural hospitals. Typically, rural hospitals have wages lower than urban ones. But Massachusetts’ only federally designated rural facility is Nantucket Cottage Hospital, where wages are inflated because of its island location and high cost of living.


Setting the wage floor in Nantucket resulted in the boon for the rest of the state. Some contend Nantucket Cottage, owned by Partners HealthCare, purposefully entered the rural-payment system five years ago in hopes of allowing other Massachusetts hospitals to reap the financial benefits.

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

Massachusetts’ good fortune, however, has meant other states have lost out on tens of millions of dollars each year. For example, all but one of Massachusetts’ hospitals benefit under the Medicare rural floor wage rule, compared with just two of 88 hospitals in Missouri, where 17 rural hospitals mainly serve a poor, dwindling farming industry. The Missouri Hospital Association estimates its hospitals lose about $15.6 million per year under the current rules. Ending the zero-sum nature of how Medicare reimburses diverse hospitals across the country is a necessary move.

Unfortunately, clearing up these rules will carry a cost for Massachusetts hospitals — some of the nation’s finest — and, ultimately, the communities that they serve. Many Bay State lawmakers have credibly argued that Massachusetts deserves more Medicare funds because of the cutting-edge medical care hospitals in the state provide, including to Medicare patients who travel here from across the country. And it is hard to consider anything a “boondoggle” when the curtailing of funds may cause some hospitals only to continue operations at a loss.

Still, the current payment formula is so obscure and complex that gaming and manipulation will always be a concern. The American Hospital Association has called it “greatly flawed,” and the Centers for Medicare and Medicaid Services itself has recommended reforms that would end Massachusetts’ windfall. The Senate passed legislation doing so in March, and the House is likely to do the same when it votes next month.

But Congress shouldn’t stop there. The same principle under which the so-called boondoggle is being eliminated — that payment should be based on costs of services, not obscure formulas — argues for a more comprehensive overhaul of Medicare’s payment structure. The Bay State’s teaching hospitals, by their very mission, carry higher fixed costs. Patients often come from out of state because they need more complicated care. Medicare reimbursements should be based on a reasonable assessment of the value of the treatment received, nothing more or less.