On December 15, 2000, Congress approved the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA), a package of Medicare provisions which restores approximately $35 billion in reimbursement cuts imposed by the Balanced Budget Act of 1997 (BBA). President Clinton signed the bill into law on December 21, 2000. BIPA includes important changes concerning Medicare geographic reclassification, which will likely be of significance to your institution.
Specifically, the bill provides that a decision by the Medicare Geographic Classification Review Board (MGCRB) to reclassify a hospital for purposes of its wage index is now effective for three years, rather than the current one-year duration. This provision becomes effective starting with hospitals that qualified for geographic reclassification for federal fiscal year (FFY) 2001. As such, a hospital that qualified for geographic reclassification for purposes of its wage index for FFY 2001 (i.e., October 1, 2000 through September 30, 2001) will continue to be treated as reclassified for Medicare payment purposes of FFYs 2002 and 2003.
Overall, this change will likely benefit hospitals that qualify for wage index geographic reclassification, especially those that have a history of qualifying sporadically. However, these changes raise several important questions. It is not yet clear how the MGCRB will process pending reclassification applications for FFY 2002 for hospitals that qualified for reclassification for FFY 2001 and will have reclassification automatically applied to FFY 2002 in light of the legislative change. This uncertainty is especially disconcerting for a hospital that qualified to one area for FFY 2001 but believes that it will qualify to a more advantageous area for FFY 2002. While a hospital may decline the three-year reclassification before the end of the three-year period, HCFA has discretion to establish the process for such a waiver. HCFA undoubtedly will place limits on the manner and timing of such waivers, which may force hospitals to make reclassification decisions before all the relevant information concerning wage index values and reclassification options is available. Finally, while it appears that these changes apply only to wage index reclassifications, HCFA may choose to extend the reclassification period for standardized amount applications, too. If not, hospitals that qualify for standardized amount reclassification will continue to have to apply annually.
Other key changes include the following:
- Beginning with applications for reclassifications for FFY 2003 (i.e., those to be filed by September 1, 2001), the MGCRB is required to evaluate requests for wage index reclassification using hospital and area average hourly wage (AHW) data from the average of the most recent three-years of published wage data. For example, hospitals seeking reclassification for FFY 2003 will likely base AHW comparisons on the average of data published in the relevant 2001, 2000 and 1999 Federal Registers, which report hospital wage data from FFYs 1998, 1997 and 1996, respectively.
- HCFA is now required to establish a mechanism whereby states may adopt a statewide wage index, which would apply to all areas within the state. Any state that adopts a statewide wage index would likely be advantaging the rural hospitals within the state at the expense of the urban hospitals and rural hospitals, which reclassify into urban areas, since the statewide wage index will likely be the average wage index for all hospitals in the state. If so, it is difficult to imagine that a state could overcome the politics that would bear upon such a decision. However, in states that do opt for a statewide wage index, the legislation provides that hospitals would not be permitted to seek geographic reclassification, possibly even if such reclassification would be to an area in another state.
- HCFA must now begin collecting occupational mix data from hospitals and utilizing such data in constructing the wage index. The MGCRB used to make available the option to demonstrate wage comparability to the area to which a hospital sought reclassification using occupational mix data, but discontinued this option several years ago when its source for occupational mix data, the American Hospital Association, stopped collecting such information. While the BIPA does not require the MGCRB to restore this reclassification opportunity, it may do so once HCFA begins collecting the necessary data.
Some of the questions raised by these changes will likely be addressed by HCFA when it publishes proposed implementing regulations for this and other provisions in the bill several months from now. However, other issues are likely to surface only when a hospital confronts a new and unforeseen circumstance. We anticipate that we will be communicating with HCFA officials concerning these changes and questions. We encourage hospitals with questions to contact us so we can raise them promptly with HCFA.