Spokane Journal of Business

Medicare law to help hospitals

Medical centers in state to get an additional $291 million from feds, but not everyone is happy

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As senior citizens and policy experts continue to debate the merits of prescription-drug coverage under new Medicare-reform legislation signed into law this week, for most hospitals, the laws benefit is clearthey get more money to care for Medicare patients.

Hospitals in Washington state stand to get an extra $291 million over the next decade under the federal Medicare program, as a result of non-drug-related language included in the measure, the Washington State Hospital Association says. How much each hospital will get depends on its size and location, says Cassie Sauer, spokeswoman for the Seattle-based association.

Doctors who treat Medicare patients also will get a bump in their reimbursements. Though just 1.5 percent, its better than the 4.5 percent cut that had been planned prior to the legislation. Doctors, however, say the hike doesnt come close to offsetting their skyrocketing practice costs fully.

Also, facilities that provide cancer treatment face dramatic cuts in the reimbursement Medicare provides for drugs used in chemotherapy. Those in the industry say some oncology practices might stop providing such treatments, or stop seeing Medicare patients.

Mark Barglof, administrator of Odessa Memorial Health Care Center, in Odessa, Wash., says the legislations funding effects are welcome.

Odessa Memorial is designated as a critical-access hospital, a federal designation for small, rural hospitals that the government wants to remain economically viable and therefore reimburses the institutions 100 percent of many of the costs of providing care to Medicare patients. Under the new legislation, those hospitals will get an additional 1 percent boost to those reimbursements.

Bigger hospitals in more urban communities, by comparison, get a fixed payment for services that typically doesnt come close to covering their costs for caring for Medicare patients, and that wont change.

That extra 1 percent reimbursement for critical-access hospitals will amount to about $640,000 next year for all of the 28 hospitals in the state with that designation, Sauer says. Over 10 years, the boost in reimbursement should add up to about $7.4 million, she says.

That affects both inpatient and outpatient payments, so its sizable for Washington states rural hospitals, Sauer says.

For Odessa Memorial, the money will be clearly an added bonus, Barglof says.

Sauer adds, though, that its no panaceamany rural hospitals operate at a loss even with the higher reimbursements paid to critical-access hospitals, and the extra money isnt likely to boost them into the black.

John White, CEO of Newport Community Hospital, in Newport, Wash., says the estimated $30,000 his hospital will get next year under the increased reimbursement isnt a huge amount, but well take any amount of dollars from the Medicare program, in particular, that we can get. It helps, theres no question about it.

The Medicare law also makes it easier for small hospitals to qualify for the critical-access designation, which White says makes an enormous difference in a hospitals finances and long-term outlook.

Pullman Memorial Hospital, in Pullman, isnt a critical-access hospital, but is taking steps to become one; the new law will make it possible for the hospital to retain that status once it moves into a new building its constructing and expands its services there, says Administrator Scott Adams.

Being part of the critical-access program likely will mean an additional $1 million to $1.2 million in revenue annually for Pullman Memorial, which for us is a significant amount of money, Adams says. Thats basically the ability to continue to upgrade our equipment and meet the service needs of our community.

Benefit to other hospitals

The new Medicare law also reworks how the government calculates inflation-based increases in reimbursement, Sauer says.

Previously, Medicare would calculate the rate of inflation, then subtract from that a certain amount to reflect improvements in productivity and other factors, to come up with inflationary adjustments to its reimbursement payment schedule. Under the new law, hospitals will get the full inflationary update as long they submit quality-assurance data to the government, Sauer says. Critical-access hospitals arent included in that change since they already get 100 percent reimbursement of costs.

The change should result in an extra $157 million to Washington state hospitals over the next decade, she says.

Another provisionwhich, again, affects non-critical-access hospitalswill increase reimbursements to all hospitals in Washington state except those in King County to equalize payments among big-city and small-town hospitals, Sauer says. Traditionally, hospitals in big urban areas such as the Seattle area have received higher reimbursements than their small-city or rural counterparts, she says. The new law standardizes payments to all hospitals, which doesnt help King County but it helps everyone else a lot, Sauer says. The change should bring an extra $127 million to rural and small-city hospitals in the state over the next decade, Sauer says.

For Deaconess Medical Center and Valley Hospital & Medical Center here, those two changes in current Medicare rules should result in an additional $900,000 to $1 million in revenue next year, a spokesman says. A spokeswoman for Sacred Heart Medical Center here says the hospital hasnt had a chance yet to determine the impact those changes could have on its bottom line.

Doctors who care for Medicare patients, and who will get a 1.5 percent reimbursement increase under the new law, say the hike is welcome, but doesnt come close to defraying their skyrocketing operating costs, which are being driven by higher malpratice-insurance premiums, higher health-insurance costs for their own employees, and increased labor costs.

Our overhead on a percentage basis has gone up 14 percent over this year versus last year at the same time, says Lloyd Guthrie, executive director of Spokane Cardiology PS.

Our revenues have not gone up that fast. Having an increase of 14 percent in expenses and an increase in reimbursement of 1.5 percentthats not very great, he says.

Brian McAlpin, CEO of Rockwood Clinic PS here, says the boost is better than a cut, but is it going to be a substantial help? No.

Rockwood Clinics medical malpractice insurance premiums will increase next year by 25 percent to 40 percent, which will add an extra about $500,000 to the clinics expenses, he says.

Our expenses will continue to escalate each year, and Medicare has not seen fit to reimburse physicians to take that into consideration. Its not economic rocket science, McAlpin says.

At best, the increase is a Band-Aid that will allow Rockwood Clinic to continue seeing Medicare patients while it presses the government for more long-term solutions to the reimbursement issue, he says.

Cancer care to take hit

Even that Band-Aid, however, is better than the significant negative impact the new Medicare law will have on the specialty of cancer care, contends Dr. Bruce Cutter, president of Cancer Care Northwest PS here.

Nationwide, the changes in oncology reimbursement will result in approximately $1 billion a year being removed from the cancer-care community, Cutter says.

The law reduces dramatically the reimbursement Medicare will make for drugs used in chemotherapy, he explains. Traditionally, Medicare reimbursed doctors well enough for those medications that it made up for low reimbursements on the services associated with administering those drugs to patients, he says.

On the service side, they were only reimbursing us a maximum of 40 percent of what it actually costs us to provide the service, Cutter says. But, you would make money on the drug itself, and those two things cancelled each other out.

Cutter says the lower reimbursement on chemotherapy drugs wont take effect until 2005, but then oncologists will have to make tough decisions.

For many practices, its going to be economically unsustainable to provide that (chemotherapy) service in the office, he says. It would mean, in effect, writing a check to Medicare every time you provide that service.

The result could be that some oncology practices might cease to provide chemotherapy, or that they might stop seeing Medicare patients, Cutter says. At Cancer Care Northwest, about half of the organizations patients are insured under the Medicare program.

Cutter says oncologists will spend the next year lobbying the federal government to change its reimbursement system for cancer care. Rather than restore the reimbursement for chemotherapy medications, however, oncologists would like Medicare to raise its reimbursement for chemotherapy services to reflect more accurately the cost of providing those services.

Yet, were certainly not optimistic thats going to happen, he says.

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