Connecticut Delegation Fights For $40 Million Reimbursement to State Hospitals

WASHINGTON, D.C. — Senators Chris Dodd (D-CT) and Joe Lieberman (ID-CT) and Representatives Rosa DeLauro (CT-3), John Larson (CT-1), Joe Courtney (CT-2), Chris Murphy (CT-5) and Jim Himes (CT-4), today called on U.S. Department of Health and Human Services Secretary Kathleen Sebelius to investigate and correct a shortfall of $40 million in Medicare reimbursement for Connecticut hospitals from the Centers for Medicare and Medicaid Services (CMS) under its rural wage index law.

In a letter to Secretary Sebelius, the delegation noted that in 2008, John Dempsey Hospital in Farmington sought guidance from CMS on their potential reclassification as a rural hospital and were led to believe that reclassifying as a rural hospital would result in their wage data being included with only one other hospital in the rural index in the state.

However, John Dempsey Hospital's reclassification was not reflected in the Fiscal Year 2009 rural wage index and because of this, 29 hospitals in Connecticut were reimbursed a total of $40 million less than they expected.

"Connecticut hospitals have already been inordinately hard hit by CMS payment policy over the last decade, resulting in huge Medicare reimbursement short falls in comparison to other states," the delegation wrote. "Against this backdrop, the hospital payment issues regarding the proposed rule become all the more compelling for Connecticut hospitals in 2010."

A copy of the letter appears below.

July 24, 2009

The Honorable Kathleen Sebelius

Secretary, Department of Health and Human Services

Hubert H. Humphrey Building

200 Independence Ave., SW

Washington, D.C. 20201

Dear Secretary Sebelius:

We write to bring your attention to, and request your assistance redressing, a severe financial matter affecting all the hospitals in our home state of Connecticut. In Fiscal Year 2009, because of the way in which the Centers for Medicare and Medicaid Services (CMS) has interpreted the Medicare wage index law and regulations, our state's hospitals are not receiving $40 million to which they believe they are entitled. This loss is even more significant in light of other Medicare and Medicaid reimbursement challenges faced by Connecticut hospitals which are detailed below.

The statute and regulation governing rural wage index calculation seems to allow different interpretations, and prior to 2009 CMS does not seem to have clarified its means of considering hospital reclassifications. In 2008, John Dempsey Hospital (JDH) sought guidance on the ramifications of their potential reclassification, and believe they were assured by CMS staff that reclassifying as a rural hospital would result in their wage data being included with only one other hospital in the rural index. Based upon these assurances JDH elected to become a rural hospital for wage index purposes. When the FY09 rule was published, JDH's wage data was not included in the rural wage index.

In subsequent discussions, CMS staff told JDH that the outcome they had sought was not possible under CMS' long standing interpretation of the applicable laws and regulations. However, this was not what JDH was led to believe prior to making the decision to reclassify, and there was no guidance or publication laying out this long standing interpretation. For this reason, twenty nine hospitals in our state are receiving a total of $40 million less than they expected and budgeted for based on conversations with CMS.

When CMS staff recently met with the Connecticut delegation on this issue, they conceded that the policy had never been published prior to the new FY 2010 Inpatient Prospective Payment System (IPPS) rule and that the statute is not explicitly clear on how it should be interpreted. However upon review they stated that they believe their interpretation was correct and consistent and that it was not possible to revise the 2009 rural wage index for Connecticut.

The fact that the proposed FY10 IPPS regulation included the publication for the first time of the policy upon which CMS apparently relied on to issue an adverse ruling against our hospitals raises questions about that interpretation. Evidently, CMS felt it needed to publish and clarify this long standing policy to the public.

Connecticut hospitals have already been inordinately hard hit by CMS payment policy over the last decade, resulting in huge Medicare reimbursement shortfalls in comparison to other states. Against this backdrop, the hospital payment issues regarding the proposed rule become all the more compelling for Connecticut hospitals in 2010.

In addition, an unprecedented level of financial instability has recently hit Connecticut hospitals, according to results of a survey by the Connecticut Hospital Association. As a result of the recession, hospitals have further postponed expansion, curtailed investment in new technologies, and implemented layoffs. Further, our hospitals have taken or are considering cutting administrative costs, eliminating services, merging or affiliating with other hospitals, and divesting assets. On top of this, more than sixty percent of hospitals have let staff go or are considering layoffs. Reducing healthcare infrastructure at precisely the time when the Administration is seeking to expand coverage is totally inconsistent and will only impede Connecticut's ability to respond to the goals of healthcare reform.

Given these dire straits, and the fact that JDH based its decision to reclassify on CMS guidance, we feel that we must bring our concerns to you and would hope that you would personally look into this matter and do everything in your power to find a retroactive wage index solution that will make whole these distressed hospitals.