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How a mistake at a tiny Massachusetts hospital disrupted Medicare payments nationally

Pictures of Money / Flickr Creative Commons

The so-called "Bay State boondoggle" is back. The hospital payment policy, based on a provision then-Sen. John Kerry slipped into Obamacare, makes Massachusetts hospitals look bad. And it's sure to create more in-fighting among hospitals — especially since it has continued to create a chain reaction that affected hospital payments around the country.

Here's a quick refresher of what that "boondoggle" is:

  • Medicare pays hospitals for their services and adjusts those payments every year based on local labor costs and wages. Federal law requires urban hospitals in a given state to be paid at least what rural hospitals receive.
  • When Congress passed the Affordable Care Act, Kerry inserted a provision that said the rural wage index must be budget-neutral nationally. It basically introduced winners (especially for those in Kerry's home state) and losers.
  • Nantucket Cottage Hospital is considered to be the only rural hospital in Massachusetts, and therefore sets the state's floor. But there's a catch: Nantucket is hardly "rural" in the traditional sense. The tiny hospital sits on a high-cost island inhabited by a lot of wealthy people. All the Massachusetts hospitals are therefore paid the much higher Nantucket rates at the expense of other hospitals across the country.

The latest: A new report from the Health and Human Services Office of Inspector General says that because Nantucket Cottage Hospital miscalculated wages and costs in 2015, it led to Medicare overpaying all other Massachusetts hospitals by $133.6 million. That's a big problem. In OIG's words: "The overpayments to Massachusetts hospitals caused underpayments to hospitals in other states." Other state hospital associations have been livid over the payment manipulation, with some comparing it to a "bank robbery."

Partners HealthCare, the Boston-based behemoth health system that owns Nantucket, didn't agree with the inspector general's office and actually asked the agency to "delete any estimates of the impact of its findings on any other hospital, be it in Massachusetts or elsewhere in the country." If Obamacare is repealed, this provision is one that won't be missed by most hospitals.