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Medicare Payment Changes Could Prompt Hospital Closings, Layoffs

John Commins, for HealthLeaders Media, May 26, 2009

New Jersey hospitals could lose $97 million in federal funds next year and more than $500 million over the next five years–prompting even more Garden State hospital closings and layoffs–under a new Medicare payment rules proposed to take effect in October, according to a New Jersey Hospital Association analysis.

NJHA examined three provisions under CMS' 2010 inpatient prospective payment proposed rule, which would take effect Oct 1 and could cost the nation's hospitals $11 billion by 2014.

The proposed rule makes several changes, including two behavioral offsets that reduce payments to hospitals to adjust for variables in coding and classification of claims and another that would eliminate capital funds distributed under the graduate medical education system.

The NJHA analysis determined that an "operating behavioral offset" would cut annual market basket adjustments for New Jersey hospitals from 2.1% to 0.2%–an approximately $77 million loss next year and $409 million over the next five years. In addition, the "capital behavioral offset" would be reduced from an anticipated increase of 1.2% to a cut of 0.7%, representing a $6.1 million loss statewide next year and $31 million by 2014.

Existing capital indirect medical education funding would be eliminated entirely under the proposed rule, a loss of $14 million next year and $71 million by 2014.

"This is more devastating financial news for hospitals in our state," says NJHA President and CEO Betsy Ryan. "New Jersey already has seen nine hospitals close in the last two years, and more will surely follow if we continue to chop away at the payments they receive for taking care of patients."

The proposed rules change was introduced on May 1, and will be finalized on Aug. 1.

NJHA also raised concerns about the expiration in 2011 of the imputed wage index floor–which gives New Jersey hospitals a minimum reimbursement level for treating Medicare patients to compensate for the high labor costs in the region. It also requires changes in hospitals' payments to be budget-neutral on a statewide basis–if one hospital sees its payments increase, other hospitals would sustain cuts of the same amount. As much as $44 million in Medicare funds could be vulnerable to this shift next year.


John Commins is a senior editor with HealthLeaders Media.

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