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Dignity Health Hospital in Arizona Dinged for Inaccurate Wage Data

By Steven Porter  
   June 06, 2019

The numbers submitted by St. Joseph's Hospital and Medical Center would have resulted in more than $11 million in overpayments to hospitals across the state, had they not been corrected.

Editor's note: This story was updated Thursday evening to include a statement from the hospital.

St. Joseph's Hospital and Medical Center in Phoenix, Arizona, overstated its wages and wage-related costs in a way that would have significantly impacted reimbursement rates across the state, according to a Health and Human Services Office of Inspector General report released Wednesday.

The error by the 595-bed nonprofit hospital, which is part of the Dignity Health system, would have thrown off calculations of the so-called "rural floor," a concept in federal law that requires that the Medicare wage index for urban hospitals in a given state be set no lower than that for rural hospitals in the state.

Had the error not been corrected, it would have resulted in $11.6 million in overpayments for fiscal year 2019 for inpatient stays across 54 hospitals in Arizona, nine of which receive the rural wage index and 45 of which are urban hospitals that benefit from the rural floor, according to the HHS OIG audit report.

Related: CMS Proposes Wage Index Hike for Rural Hospitals

Related: Robin Hood To Rescue Of Rural Hospitals? New Math Promised On Medicare Payments

Auditors selected St. Joseph's for closer review because it had the potential to significantly affect Medicare payments in Arizona for fiscal year 2019 and because "hospitals often report inaccurate wage data," according to the report, which includes links to dozens of past HHS OIG audit reports regarding hospital wage data issued between 2005 and 2017.

This latest audit is the first to be published since the Centers for Medicare & Medicaid Services proposed changes to the wage index that would shift more money to rural hospitals from urban hospitals, which receive a higher reimbursement to account for higher labor costs in urban markets.

The proposal would affect the rural floor calculation, which CMS Administrator Seema Verma said some urban hospitals have used in "gaming the system" through urban-to-rural reclassifications.

A spokesperson for Dignity Health St. Joseph's Hospital and Medical Center released a statement Thursday that says the organization strives for accuracy in its cost reports and for compliance with all state and federal regulations.

"Although we regret that some errors were made with this specific report, they were not made intentionally," the statement says. "The reporting issues had been identified and were being addressed by Dignity Health as the Office of Inspector General was doing their concurrent review. The wage index was finalized correctly and an overpayment did not occur. Dignity Health regularly updates policies and procedures to address changes with regulations and has also revised its preparation and review process."

Dignity Health, which operates eight other hospitals in Arizona, provide responses directly to HHS OIG, as reflected in the report.

The errors occurred for three reasons, according to the report. First, the hospital's responsibilities to report its wage data had been reassigned to a new group of Dignity Health staff in the centralized office. Second, the system lacked adequate review procedures to make sure the numbers reported were correct and the forms were filled out properly. Third, the system lacked sufficient quality control over the way contract labor data were tracked in its accounting system.

Steven Porter is an associate content manager and Strategy editor for HealthLeaders, a Simplify Compliance brand.


The HHS OIG selected the hospital for an audit because of its potential to significantly affect Medicare wage index calculations in Arizona.

The audit report's publication comes as CMS pushes changes to the wage index and its 'rural floor' calculation.

The hospital says the errors were made uninentionally and corrected when discovered.

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