U.S. Congress Creates New Geographic Reclassification Opportunity for Hospitals
December 8, 2003
All hospitals should be aware of an important change included within the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 that provides an opportunity for hospitals that historically have not been able to qualify for wage index geographic reclassification to now qualify.
Under current law, Medicare payments to hospitals for inpatient and outpatient services are geographically adjusted by a wage index to reflect variations in labor costs among labor markets. CMS assigns wage indices based on a hospital’s location within a Metropolitan Statistical Area or rural portion of a state.
In 1989, the U.S. Congress established a mechanism whereby a hospital--rural or urban--could seek to be reclassified from the area in which it is physically located to another proximate area for purposes of one or several different payment components. Generally, a hospital applying for wage index geographic reclassification must prove three things: that the hospital’s wages are higher than hospitals in the area in which the hospital is physically located; that the hospital’s wages are comparable to the area to which it seeks to be reclassified; and that the hospital is proximate to the area to which it seeks to be reclassified. However, certain exceptions apply.
Each year approximately 500 hospitals qualify for wage index reclassification. Many others seek reclassification but fail because they do not satisfy one or more of the bright-line and rigidly enforced criteria.
Section 508 of the new law requires the Centers for Medicare and Medicaid Services (CMS) to establish a process under which hospitals can apply and potentially qualify for wage index geographic reclassification, even if they do not satisfy each of the existing criteria. In other words, a hospital that is, for example, beyond the mileage limit from a neighboring metropolitan area, or that does not satisfy one of the wage comparisons, may now be reclassified.
According to the new law, this opportunity will be available on a one-time basis only and for a limited period of time. Hospitals must submit requests to the Medicare Geographic Classification Review Board (MGCRB) by February 15, 2004, to be considered for reclassification. Qualifying hospitals will be reclassified effective April 1, 2004, (a full six months earlier than the hospitals that submitted requests through the ordinary process last September) and for three years, which is the same period as hospitals that qualify through the regular process.
While this law creates an unprecedented and possibly extremely beneficial opportunity for many hospitals, it is not at all clear which might be eligible for this windfall. The legislative language reflects the haste with which it was written and begs numerous questions. For example, it is not at all clear how the MGCRB will evaluate reclassification requests. The bill confers considerable discretion on the secretary to define the eligibility criteria and provides that hospitals that presently qualify are not eligible as one of the only limitations. As such, it is not clear whether the MGCRB will use new bright-line and rigidly enforced criteria, similar to the current criteria, or whether the evaluation may be more subjective, giving hospitals a chance to “tell their story.”
Similarly, the bill allocates $900 million to be used to adjust the payments of qualifying hospitals but does not specify how CMS is to adhere to this budget. MGCRB may approve requests until the $900 million is allocated and then shut the door, or approve as many applications as it deems to qualify and then reduce the reward to qualifying hospitals. Alternatively, CMS may create criteria that are likely to limit the number of qualifying hospitals.
Some of these questions may be clarified in the coming weeks as CMS has time to digest the new law and begins the tedious job of implementation. Others may not be answered until well after decisions are handed down. Nonetheless, any hospital that believes it has a case to make should consider doing so.
