May 7, 2020 - United States Senators Lamar Alexander (R-Tenn.) and Marsha Blackburn (R-Tenn.) introduced legislation today they say will boost Medicare payments, which will help hospitals in Tennessee keep up with the cost of providing care and help curb the trend of rural hospital closures.
"Last year, the Trump Administration updated the formula that determines how much Medicare will reimburse hospitals for patient care, taking into account, among other things, the cost of labor in that geographic area - called the Medicare Area Wage Index. And because of this change, Alan Levine, who leads Ballad, announced a $10 million investment in pay increases to nurses. However, these changes are temporary and will expire in three years, and many hospitals are concerned that hospital reimbursements could revert to the lower rates," Alexander said. "Given COVID-19 impacts on rural hospitals, any changes that lower reimbursement would have significant impact. Tennessee has the second highest rate of hospitals closures in the country, with 13 hospitals having closed since 2010, and this is, in large part, due to lower reimbursements. This legislation will help keep up with the cost of providing care and help curb the trend of Tennessee rural hospital closures by setting an appropriate national minimum for the Medicare Area Wage Index."
"Rural hospital closures were already in crisis in Tennessee before the COVID-19 pandemic. This bill fixes three decades-old design flaws to help keep hospital doors open in rural communities," Blackburn said.
The legislation the senators introduced today, along with Senators Mark Warner (D-Va.), John Cornyn (R-Texas), Doug Jones (D-Ala.), Tim Kaine (D-Va.), David Perdue (R-Ga.) and Richard Shelby (R-Ala.) would:
- Establish an appropriate national minimum (0.85) for the Medicare Area Wage Index (AWI)
- Ensure rural hospitals are paid for the care they provide while preserving the existing reimbursements for urban hospitals
- Ensure fairness in reimbursements for hospitals across the country, including many hospitals that are facing closure in rural areas
- Fix severe and disproportionate disadvantages that unfairly penalize hundreds of communities and hospitals across the United States
Background on the Medicare Area Wage Index
- The Medicare Area Wage Index, which is a formula Medicare uses to reimburse hospitals, is much lower for states like Tennessee because the formula is based labor costs, which vary across the country. The Area Wage Index in Tennessee once again decreased for 2019, further hurting Tennessee hospitals.
- Medicare accounts for about 43 percent of reimbursements for hospitals nationally, according to the American Hospital Association.
- For example, in Fiscal Year 2019, reimbursements in Alabama were adjusted by a factor of 0.67 and Tennessee's by a factor of 0.71 - so reimbursement is cut by roughly one-third in Alabama and Tennessee.
- Meanwhile a hospital in California had their reimbursements adjusted by a rate of 1.25 in 2019, and hospital in Massachusetts by a rate of 1.35. So those states are seeing their reimbursements increase at the expense of Tennessee and Alabama and others. This seems to create a perverse incentive by rewarding states with higher labor costs.