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Friday, June 21, 2024 | Back issues
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Hospitals Lose Medicare Reimbursement Dispute

CHICAGO (CN) -The Department of Health and Human Services can include paid lunch hours in its calculation of hospitals' average hourly wages, a factor that affects Medicare reimbursements, the 7th Circuit ruled.

More than 80 hospitals in Rhode Island, Kentucky and the greater Chicago area sued HHS Secretary Kathleen Sebelius, alleging that the method used to calculate labor costs lowered their total Medicare reimbursements by about $20 million from 2003 to 2006.

Medicare's prospective payment system encourages efficiency with a formula to calculate reimbursement for each patient without regard to how much the hospital actually spent. Hospitals that spend less than the reimbursement amount can keep the difference. If costs exceed the reimbursement amount, however, the hospital must absorb the loss.

A "wage index" factor is assigned to each hospital to account for differences in labor costs across the country. The number is calculated using average hourly wage in the hospital's metropolitan statistical area.

Hospitals much report all paid hours, including lunch, overtime, holiday, vacation, and sick leave, time-off hour, and hours associated with severance pay. Some hospitals pay their employees for a half-hour lunch break each workday, lowering the average hourly wage in the area.

But the 80 hospitals took issue with the inclusion of paid lunch hours in the formula - not the other paid unworked hours - asserting that doing so fails to "reflect relative hospital wage levels."

After an unsuccessful appeal to the Provider Reimbursement Review Board, the hospitals sought review in federal court. U.S. District Judge Ronald Guzman in Chicago rejected their arguments, however, ruling that the formula validly counts all paid hours for the sake of administrative simplicity. The 7th Circuit affirmed.

"Because the paid-hours policy is more readily administrable than alternatives, the secretary has 'considered an important aspect of the problem,'" Judge Diane Sykes wrote for the three-judge panel. "Furthermore, any artificial depression in the hospitals' wage indices ultimately may be ameliorated if hospitals in other MSAs [metropolitan statistical areas] also offer paid lunch breaks or more paid leave in other categories."

"The secretary has provided a coherent and reasonable justification for her policy of counting all paid hours: It is a bright-line rule that ... avoids the costs associated with tracking certain kinds of paid unworked time that payroll systems do not record," the Dec. 15 decision states. "And it avoids the slippery slope that comes with trying to exclude certain types of paid leave but not others."

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