Executives at Vermont hospitals faced with paying back hundreds of thousands of dollars, and in some cases millions, to Medicare say the repayments weaken their financial positions, but won’t have a direct impact on patient services.
The repayments are the result of Medicare enforcing a 2012 policy change that many hospital executives say was unexpected. The policy change has been applied retroactively to 2010.
The Vermont Association for Hospitals and Health Systems estimates the total impact on 10 Vermont hospitals at $12 million to $14 million.
Most affected hospitals have been aware of the possible Medicare repayments for some time and accounted for them in their recently approved 2015 budgets, according to the 10 hospital chief financial officers who were interviewed for this story.
But the repayments will leave hospitals with less cash on hand to deal with unexpected costs.
“We don’t anticipate it impacting our services, but it definitely makes it more challenging to balance everything out,” said Rassoul Rangaviz, CFO of Copley Hospital in Morrisville.
Vermont’s eight critical access hospitals, a federal designation that affords rural hospitals higher Medicare payments, will see a greater impact, because of how their Medicare reimbursements are calculated.
Northeastern Vermont Regional Hospital in St. Johnsbury, which may ultimately be the hardest hit, estimates it will pay back a total of $2.5 million or close to 4 percent of its $65 million in annual patient revenue.
David Sanville, CFO at Mt. Ascutney in Windsor, said a more meaningful measure of the repayments impact is the percentage of a hospital’s profit margin.
His hospital expects to pay $800,000 or 2 percent of revenue. That 2 percent is equal to 25 percent of the hospital’s profit margin.
Vermont’s nonprofit hospitals reinvest profits in personnel, equipment and facilities. With pressure to reduce health care costs from state regulators, the margins are already thin, Sanville said.
It is difficult to say how the repayments will impact Mt. Ascutney, Sanville said, but it will mean some belt tightening.
Hospitals have already begun making repayments. Northeastern is forking over $322,000, according to CFO Bob Hersey. Porter Medical Center has paid close to $600,000, according to CFO Steve Ciampa.
Hersey expects his hospital will have to pay the full $2.5 million within the next 18 months, he said. Most CFOs said they plan to appeal the back charges, but that could take years.
Northeastern’s leadership was optimistic in 2012 that the Medicare requirement wouldn’t materialize.
But when it became clear in the spring of 2013 that the hospital would face repayments, the administration found savings and efficiencies to minimize the impact on operations.
Still, Hersey and several other CFOs did not rule out returning to the Green Mountain Care Board, which regulates hospital budgets, to seek additional relief.
Why is Medicare seeking repayments from Vermont hospitals?
Each year hospitals file a Medicare cost report where they catalog their Medicare expenses, which many hospital CFOs say is similar to a personal income tax return.
The reports are audited by third-party contractors that administer Medicare for the federal government. National Government Services is the regional contractor for Vermont and the rest of New England.
Every state, with the exception of Alaska, has a health care provider tax, which is typically used to tax hospital patient revenues. States, including Vermont, use that tax revenue to draw down additional federal Medicaid match money.
In a separate matter, Vermont hospitals are currently suing the state for taxing earnings they don’t consider patient revenue.
In 2012, the Centers for Medicare and Medicaid Services changed the rule for how provider tax reimbursements are calculated. Many Vermont hospitals thought the rule change would not be applied to them, because since 1991, when Vermont passed its provider tax, hospitals were able to write it off on their cost reports, and typically all or most of what they paid the state was reimbursed by Medicare.
But in the spring of 2013 Vermont hospitals started receiving notices from NGS that adjustments would be applied to their cost reports, and the adjustments would be retroactive going back to 2010.
“When this issue first reared its head they had a different calculation to offset the provider tax,” said Jeff Hebert, CFO at Gifford Hospital. “Since taking that stance, they’ve given us another calculation that’s slightly more favorable.”
Hospitals began receiving a new round of notices earlier this year, which are now coming due on a rolling basis as National Government Services closes out back years.
Hospitals that appeal will go before the independent Provider Reimbursement Review Board. But that board’s rulings can be overturned by the secretary of the U.S. Department of Health and Human Services.
Appeals can then be taken to federal district court, but several district court rulings in the 2000s have upheld the fed’s ability to retroactively adjust reimbursements.
