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CMS To Pay Hospitals Over $3 Billion for CMS' Miscalculation

Hospital chains Hospital Corporation of America (HCA) and Tenet Healthcare Corporation (Tenet) announced on April 12th that the Centers for Medicare & Medicaid Services (CMS) has admitted that it erroneously calculated the rural floor provision established by the Balanced Budget Act of 1997. According to the HCA press release:

[T]he rural floor provision establishes that a] urban hospital's wage index within a particular state could not be lower than the statewide rural wage index. The wage index reflects the relative hospital wage level compared to the applicable average hospital wage level. . . [T]his provision [is] budget neutral, meaning that total wage index payments nationwide before and after the implementation of this provision must remain the same. To accomplish this, the Centers for Medicare & Medicaid Services (CMS) was required to increase the wage index for all affected urban hospitals, and to then calculate a rural floor budget neutrality adjustment (RFBNA) to reduce other wage indexes in order to maintain the same level of payments.

According to a Los Angeles Times article, the erroneous payments could amount to over $3 billion dollars in additional payments to over 2,200 hospitals.  Here is a partial list of the hospitals that have announced their settlements with CMS related to this matter and the amounts that they anticipate receiving from the agency:

  • HCA - $271 million
  • Tenet - $84 million
  • Long Beach Memorial Center - $6 million
  • Cedars-Sinai Medical Center - $14.3 million

A Modern Healthcare article, in questioning a CMS official, stated that the settlement comes after a ruling from the DC Circuit Court of Appeals finding that "CMS incorrectly applied the law's budget-neutrality requirement to hospital's rural wage index from fiscal 1999 to fiscal 2011" in a related case: Cape Cod Hospital et al. v. Sebelius and U.S. Department of Health & Human Services.  


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