Change in Medicare reimbursement rules will mean more money for 39 rural hospitals in Kentucky, totaling $4 million a year

Photo: Rural Health Information Hub

The Centers for Medicare and Medicare Services said Friday that it will adjust its Medicare payment formula, starting in October, in a way that will boost payments to rural hospitals, which "have complained that this measure has unfairly disadvantaged some of them because wages are lower in their communities," Dan Diamond reports for the Politico Pulse newsletter.

The move is expected to mean more money for 39 Kentucky hospitals, totaling $4 million a year, according to the Kentucky Hospital Association. Some critics of the plan note that it doesn't apply to critical-access hospitals, which comprise about half the rural hospitals in the country. Kentucky has 27 such hospitals, which are generally in rural areas and have 25 or fewer beds.

The index is based on how much a hospital pays its staff, so hospitals in areas with high living costs get higher reimbursements than areas that have low cost of living -- for the same services. A labor market's wage index is the ratio of its average hourly wage to the national average hourly wage, according to CMS."

KHA says the wage-index disparities mean Kentucky's rural hospitals get approximately 26 percent less -- $1,800 per case -- than the state with the highest rural wage index. Kentucky's urban hospitals with the highest wage index get 40 percent less, $3,700 per case, than hospitals with the highest urban wage index "for providing the exact same level of care to Medicare beneficiaries," KHA says. "The wage index is a significant issue for Kentucky's hospitals because Medicare covers about one-half of all patients treated in hospitals."

The proposed rule would reduce the disparity in reimbursements by increasing the wage index for hospitals in the bottom fourth of payments and reducing the index of those in the top fourth, creating a budget-neutral shift of funds, a CMS news release said.

"After the rule's release, the American Hospital Association said it supports improving the wage index values for rural hospitals, but that CMS shouldn't have done so in a budget-neutral manner," Diamond writes. "the National Rural Health Association — which last week pointed to a new investigation on rural hospitals' financial difficulties — had previously praised CMS' proposed version of the rule."