Hospital Groups Seek Fix for Medicare ‘Nantucket Effect’

A group of 20 state hospital associations and the National Rural Health Association sent a letter  (opens in a new tab) to President Obama last week asking him to help undo an obscure provision in the 2010 healthcare law that allows hospitals in Massachusetts to collect higher Medicare payments at the expense of other states.

The letter asked the president to include language in his fiscal year 2014 budget submission addressing the negative effects of the policy, which the Institute of Medicine has dubbed the “Nantucket effect” and some are referring to as the “Bay State boondoggle.”  (opens in a new tab)

“If left uncorrected, hospitals in 49 states will experience reduced funding of more than $3.5 billion over the next 10 years as a direct result of this manipulation of Medicare’s hospital wage index,” the letter states. “Scarce Medicare funding should reward value and efficiency in healthcare, not be diverted based on manipulation of obscure payment formulas.”

The provision, which was added to the Affordable Care Act by Sen. John Kerry (D-Mass.), is based on a payment system that stipulates urban-area hospitals receive at least the same amount in Medicare reimbursements for doctor and staff wages as rural hospitals. Although wages at rural hospitals generally are lower than at urban facilities, Massachusetts is an anomaly. The only rural hospital in the state is located in Nantucket—a wealthy, high-cost area with high Medicare payments—and sets a high payment bar for the state’s other hospitals, The Boston Globe reported  (opens in a new tab).

“What I am outraged about is that high-value, high-quality Wisconsin hospitals in communities across the state will lose millions because of a calculated approach to manipulating arcane rules and regulations,’’ Steve Brenton, president of the Wisconsin Hospital Association—one of the coalition members—said in a statement  (opens in a new tab) addressing the issue. “It’s just not right to dock hospitals in 41 states to give very few states a windfall.”

Massachusetts is set to receive an additional $256 million in Medicare wage payments this year, resulting in lower payments to other states, such as Missouri, which will receive roughly $15 million less than it would have without the provision, said Missouri Hospital Association President Herb Kuhn in a statement  (opens in a new tab). “Missouri’s hospitals are fighting reimbursement cuts on multiple fronts. And, that’s hard enough when the pain is being shared equally. However, it is unfair to expect Missouri’s hospitals to bear these cuts while others play by their own set of rules.”

The policy is also being criticized by former administrator of the Centers for Medicare and Medicaid Services Dr. Donald Berwick.

“The entire way the payment system is now calculated has become so complex and so susceptible to gaming and manipulation that you’d play the game yourself if you were running a hospital, to make sure your reimbursements continue to go up,” Berwick told The Boston Globe. “It’s a zero-sum game. What Massachusetts gets comes from everybody else.”

Hospital associations from the following states signed the letter sent to Obama: Alabama, Arkansas, Delaware, Georgia, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Nebraska, North Carolina, Ohio, Oklahoma, Oregon, South Carolina, South Dakota, Virginia, West Virginia, and Wisconsin.

Correction: A prior version of this story stated that Massachusetts is set to receive more than $256 million in Medicare wage payments this year, while Missouri will receive around $15 million. Massachusetts will actually receive an additional $256 million in Medicare wage payments, while Missouri will receive $15 million less in Medicare wage payments. We regret the error.

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