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Medicare Ruling Could Mean $12 Million Hit to Vt. Hospitals

Sunday, August 17, 2014
Randolph — The instructions alone stretch out for 291 pages. The completed form (CMS-2552-10, if you’re playing along at home) prints out into a stack of papers more than an inch thick. And the audit and reimbursement process lasts for years — even if there are no appeals.

Welcome to the complex and opaque realm where the federal government pays hospitals for services to patients covered by Medicare. And then hospitals justify the expenditures for which they have been reimbursed. And then third-party auditors review those justifications.

It’s as exciting as it sounds. So it’s hardly surprising that nobody who wasn’t wearing green eye shades seemed to notice a 2012 ruling by Medicare auditors that eventually could force eight small hospitals in Vermont to r epay as much as $12 million to the federal government.

Gifford Medical Center in Randolph could be on the hook for as much as $1.6 million, according to Chief Executive Joe Woodin.

At Mt. Ascutney Hospital and Health Center in Windsor, the tab could reach $1 million, said Chief Financial Officer David Sanville.

And officials at financially troubled Springfield Hospital have warned of the ruling’s potentially “devastating impact on our operating results and cash flow.”

At issue are cost reports that each hospital files justifying payments from the federal government for health care services and products covered by Medicare, a federal health insurance program for seniors and people with disabilities.

For years, administrators say, Vermont’s small hospitals had been reimbursed by Medicare for a portion of their state provider tax payments. Through the provider tax, currently set at 6 percent of a hospital’s net revenue, the state collected $117.1 million from Vermont’s 14 hospitals in fiscal 2013.

During routine audits in 2012 at Gifford Medical Center and one other small Vermont hospital, a federal contractor ruled that Medicare had overpaid when it reimbursed the small hospitals for their provider tax payments. At that time, the decision failed to attract much attention beyond the state’s tight-knit community of hospital administrators and bureaucrats.

The financial hit to Vermont’s small hospitals, which would unfold during the annual back-and-forths with federal overseers and contractors about Medicare costs and reimbursements, could be $400,000 to $500,000 a year each for three years, said Michael Del Trecco, vice president of finance for the Vermont Association of Hospitals and Health Systems. That could pencil out to $10 million to $12 million .

The affected hospitals are the state’s eight Medicare-designated “critical access” facilities, including three in the Upper Valley: Gifford, M t. Ascutney and Springfield. A critical access designation entitles small rural hospitals to higher-than-standard payments from Medicare.

Implementing the changed interpretation of Medicare rules would “create pretty significant cash flow problems for all of the (critical access) organizations,” Woodin said.

Large hospitals, whose Medicare payments get calculated differently, were not affected by the ruling.

Mark Larson, commissioner of the Vermont Department of Health Access, said that while the accounting dispute was a Medicare issue in which the state had no direct involvement, state officials were aware of the matter, which they viewed as something that could affect “the financial stability of some of Vermont’s hospitals.”

Gifford officials challenged the costly ruling in an October 2012 email sent to a manager in the audit department of National Government Services, which, under a contract with the federal Centers for Medicare and Medicaid Services, administers Medicare hospital insurance contracts in Vermont, New Hampshire and eight other states.

National Government Services is owned by WellPoint Inc., the owner of the largest health insurance company in New Hampshire: Anthem Blue Cross Blue Shield. On Wednesday, Indianapolis-based WellPoint announced plans to change its name to Anthem Inc. later this year.

A spokeswoman confirmed that National Government Services administers Medicare hospital contracts in Vermont but referred questions about the audit ruling to the Centers for Medicare and Medicaid Services. An agency spokeswoman said she could not “provide information on ongoing audits or possible audit adjustments.”

Vermont began taxing hospitals and some categories of health care providers in 1991. The levies were intended to ramp up the flow of federal dollars into Vermont — to “help provide the state share to leverage federal funds to support the state’s Medicaid program without added expense to the state’s general fund,” as a report commissioned by the state Health Access Department put it. Small hospitals with the critical access designation paid the so-called provider tax, but were reimbursed for some or all of that payment by Medicare.

Gifford was one of the first two Vermont hospitals to receive a repayment order from the auditors, making the hospital a sort of “canary in the coal mine” for the state’s small hospitals, Woodin said. The retroactive requirement for repayment, combined with the time lag between when the hospital collects payments from Medicare and when a subsequent audit is completed, made the ruling especially onerous, he said.

Gifford could end up owing somewhere in the range of $350,000 to $400,000 for each of its four most recently completed fiscal years, Woodin said. “It’s a huge bill,” said Jeff Hebert, the hospital’s chief financial officer.

But Gifford, which posted $59.9 million in net patient care revenue in fiscal 2013 on its way to an operating profit of $1.7 million and an overall surplus of $2.7 million, has already set aside money to cover repayments, Woodin said. “We’re reserved for most of it.”

Medicare repayments also loom at Mt. Ascutney, which operated in the red during the first quarter of the fiscal year that runs through Sept. 30 after its operating margin dipped to $22,000 in fiscal 2013. That year Mt. Ascutney posted net patient care revenue of $44.7 million and an overall surplus of $1.1 million.

Mt. Ascutney has reserves set aside to pay what it may end up owing Medicare for fiscal 2010 and 2011, and included the unfavorable treatment in its budgets for fiscal 2012 and 2013, Sanville said.

“A favorable outcome” on the Medicare issue would provide Mt. Ascutney with more of a financial cushion, he added.

Springfield Hospital officials did not respond to inquiries about the impact of the Medicare ruling. However, in a budget narrative submitted to the Green Mountain Care Board, hospital officials warned that the Medicare ruling would devastate their budget. The hospital’s “financial position (had) deteriorated significantly in FY 2013” in the face of “the seemingly unending need to do more for our patients with fewer resources,” said the narrative, which also described the facility as a “veritable ‘poster child’… for the impact of social determinants of health on a small, rural health care delivery system.”

The hospital said it had a “plan to appeal this adjustment with the Medicare Provider Reimbursement Review Board if necessary.”

While the changed rule interpretation could eventually have national repercussions, it won’t immediately affect small hospitals in New Hampshire with critical access designation, according to Paula Minnehan, the vice president for finance and rural hospitals at the New Hampshire Hospital Association. That’s because New Hampshire hospitals haven’t generally sought to include provider tax in the Medicare costs for which they sought reimbursement from the federal government, she said.

New Hampshire used a different arrangement to reimburse hospitals for provider tax payments, which totaled $185 million in fiscal 2013. Until 2011, much of the that revenue was returned directly to New Hampshire hospitals in a financial arrangement that added revenue, in the form of federal matching funds, to the state’s general fund while shielding the hospitals from actual tax liability.

In Vermont, according to the state hospital association, the state cushioned hospitals from the impact of the tax through a combination of Medicaid rate increases and special payments to hospitals with heavy loads of low-income patients. That arrangement broke down in 2009, according to the association.

Rick Jurgens can be reached at or 603-727-3229.

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