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Dartmouth-Hitchcock Wages Boost N.H. Medicare

Lebanon — Critics have called it the “Bay State boondoggle,” in which Massachusetts hospitals manipulate an obscure Medicare rule in order to gain hundreds of millions of dollars in additional federal money.

But while Massachusetts was by far the biggest winner in the Medicare calculation system known as “the rural floor,” it was not the only one to come out ahead.

New Hampshire is one of only nine states that had a net gain this year under the rule, which mandates that a state’s urban hospitals have to be reimbursed for wages paid to staff at least as much as rural hospitals.

Part of the reason the Granite State was able to avoid the major funding losses suffered by most other states is because of the relatively high wages paid at Dartmouth-Hitchcock Medical Center, health care experts say.

“In part, it’s because even though Medicare doesn’t think of places like Concord or Lebanon as urban areas, they compete with Boston (for doctors and nurses),” said Steve Norton, executive director of New Hampshire Center for Public Policy Studies.

Wage calculations are just a small part of how Medicare funding is determined. But this particular rule has tended to benefit states with large rural hospitals that offer high compensation to staff.

Massachusetts is unlike any other state in this regard, where just one hospital on the wealthy island of Nantucket sets the wage “floor” for all the other urban hospitals in the state.

Rural hospitals typically pay less than institutions in a city. But because Nantucket is an expensive place to live, doctors and nurses are paid according to the cost of living, and effectively setting a baseline for everyone else in the state. For inpatient Medicare reimbursements alone, the rural floor calculation resulted in $188 million more going to Massachusetts for fiscal year 2013, according to figures provided by the Centers for Medicare and Medicaid Services. That does not include reimbursements for outpatient services, which likely will mean many more millions going to Massachusetts. Outpatient figures have not been released publicly, but information obtained by the Boston Globe and confirmed with federal officials showed Massachusetts getting a net gain of $256.6 million from inpatient and outpatient reimbursements because of adjustments from the rural floor.

That additional money going to the Bay State, however, was being pulled away from other states who were sharing in the same pool of Medicare money. Since 2011, a provision of the federal health reform law has required that Medicare reimbursements for hospital wages come from a nationwide pool of money. As a result, increases for some states mean decreases for others.

New York, for example, lost $46.8 million in FY13 because of the rural floor rule. Vermont lost $700,000.

New Hampshire, however, avoided such losses and actually came out $10 million ahead, according to CMS data.

Hospital officials say it would be wrong to compare New Hampshire to its neighbor to the south. New Hampshire doesn’t have a “Nantucket,” per se, where one hospital is driving up reimbursements for everyone else. But institutions such as Dartmouth-Hitchcock and Concord Hospital, both of which are considered rural, still pay relatively high wages and lift the averages used in setting the rural floor, said Paula Minehan, vice president of finance and rural hospitals at the New Hampshire Hospital Association.

“Dartmouth would certainly go into the mix,” she said. “It’s pretty heavily weighted because of how many they employ and what the hourly average wage is because they’re a teaching hospital.... They contribute greatly to setting the rural floor.”

Hospital workers at Lebanon’s two hospitals — DHMC and Alice Peck Day — earned an average of $74,756 in wages and benefits in 2008, which was among the highest in the state, according to data collected by the New Hampshire Center for Public Policy Studies. Only workers in Rochester, Derry and Portsmouth earn more.

Dartmouth-Hitchcock’s wages are higher than most other rural hospitals because they have to be, said Frank McDougall, vice president of government affairs at Dartmouth-Hitchcock. The hospital is competing for doctors and nurses with peer institutions in Boston, such as Massachusetts General Hospital, and must therefore pay competitive salaries, he said. Funding those salaries necessarily relies on Medicare money, which accounts for 35 percent to 40 percent of its $1.2 billion budget.

That’s why Dartmouth-Hitchcock doesn’t really gain much under this system, he said. New Hampshire hospitals may have shown a net gain, but the hospitals against which it is competing in Massachusetts received funding many times greater.

“We’ve always been greatly disadvantaged by the way that is calculated,” McDougall said.

The rural floor may be higher in New Hampshire than other states, but the amount of Medicare money Dartmouth-Hitchcock receives is still far less than hospitals in cities such as Boston or Miami, McDougall said.

It’s difficult to say exactly how much money New Hampshire is “losing” to Massachusetts hospitals, Minehan said. But the huge disparity between Massachusetts’ Medicare payments and everyone else’s are why Minehan and other hospital officials in New Hampshire are joining the chorus of those calling for changes in the way geography influences Medicare calculations.

“The problem with this is that one state was able to benefit,” she said. “Not that they did anything wrong, it’s just the way the system works. They were able to benefit to the harm of other states.

“There needs to be a more comprehensive wage index reform discussion.”

McDougall agreed.

“I think they need to do this whole geographic classification over again. It doesn’t work,” he said.

Broad reforms could be a long way off, but in the meantime, a coalition of 21 hospital associations are fighting to get their money back.

The issue of reversing the windfall for Massachusetts is expected to come up before Congress in the next month or two during debt ceiling and entitlement reform discussions, according to Dan Boston, a health care lobbyist representing the coalition.

There is another proposal to “claw back” some of the money Massachusetts has received in the last two years, or trim future collections, Boston said.

The coalition, which does not include any hospital association from the Northeast, also sent a letter to President Obama last week urging him to address the issue.

The imbalance in payments is just one more reason why the existing payment model, which is vulnerable to manipulation, needs to be reformed, McDougall said.

“It really does need an overhaul,” McDougall said. “(The issue of) fair reimbursement for the patients we treat needs to stop being a political football.”

Chris Fleisher can be reached at 603-727-3229 or cfleisher@vnews.com.