Feds Renew State’s Medicare Extension, Netting Millions for NJ Hospitals

Andrew Kitchenman | August 6, 2013 | Health Care
Quirk in rules would otherwise penalize New Jersey for being a high-density state

U.S. Senator Robert Menendez (D-NJ).
Although New Jersey’s is the country’s most densely populated state, large swathes of it remain rural.

But a quirk in Medicare regulations lumps those rural regions in with urban and suburban areas. And that could potentially lead the state to lose between $29 million and $57 million in federal funding under a complex government rule.

The high-density exception to the rule only applies to New Jersey and Rhode Island. In the other 48 states, some hospitals in metropolitan areas receive bonus Medicare payments to compensate them for being compared with higher-income rural locales.

Until 2005, that meant that New Jersey and Rhode Island were the only two states that didn’t receive the additional money, since all of their land is included in metro areas.

Beginning in 2005 and continuing through a series of extensions that were set to end in September, federal officials allowed New Jersey to be treated the same as states with rural areas, resulting in tens of millions of dollars in payments to hospitals here.

Without another extension, New Jersey hospitals would have lost the money. However, after lobbying from the state’s congressional delegation and the hospital industry, another one-year extension has been added by the U.S. Centers for Medicare and Medicaid Services (CMS).

“We didn’t have a provision that 48 other states in the country could take advantage of,” said Roger Sarao, vice president of economic and financial information for the New Jersey Hospital Association.

The additional funding that states with rural areas receive is the result of an anomaly in the Medicare regulations. Federal funding for inpatient admissions of Medicare recipients varies depending on local wages.

“We lobbied that there had to be equal treatment,” Sarao said.

While all of New Jersey’s members of Congress — most prominently Senator Robert Menendez — asked for a permanent extension, it was only granted through September 30, 2014.

Sarao said the situation that first caused the federal government to grant an extension hasn’t changed, so the extension should remain in place.

CMS officials said the extension was only for one year because they have proposed a complete overhaul of how the federal payments are calculated, based on smaller labor markets defined for each hospital.

While Menendez’s office released a statement estimating that the extension would provide $29 million for 25 state hospitals, the NJHA said the 25 hospitals would receive an additional $44 million in inpatient payments and $13 million in outpatient payments. Most of these hospitals are located in southern and central New Jersey, where wages generally are lower than in northern New Jersey.

Menendez said in a statement that New Jersey’s hospitals face unique challenges.

“New Jersey is home to some of the nation’s finest hospitals. However, operating a hospital in our state is extremely expensive and without this policy New Jersey hospitals face a significant disadvantage when compared to those in neighboring states,” Menendez said. “The announcement is proof that CMS recognizes the unique set of circumstances facing New Jersey hospitals and is willing to provide them reimbursements reflecting that.”