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U.S. to
Review Big Payments for Medicare
By Reed Abelson
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Spurred by the example of unusually large Medicare payments to Tenet
Healthcare, the government is reviewing what it pays to other hospital
systems to see whether they have taken advantage of Medicare rules to
increase their reimbursements inappropriately, a federal health regulator
said yesterday.
Under Medicare, hospitals are typically paid a fixed amount for specific
diseases, but they also qualify for special reimbursement if the cost of a
case surpasses a certain amount. Last year, hospitals received about $5
billion in special payments, said Thomas Scully, the administrator for the
Centers for Medicare and Medicaid Services. "It's big dollars," he
said, "it's big issues."
Tenet, one of the nation's largest for-profit hospital chains, has come under scrutiny for collecting an unusually large amount of these payments. Federal regulators said last week that they planned a company wide audit to make sure the payments were proper under Medicare rules.
While Tenet insists it has broken no rules, the company has acknowledged that its aggressive pricing strategy in certain markets appears to have led to large collections. While hospitals generally receive about 5 percent of their Medicare reimbursements from these special payments, Tenet received roughly 25 percent.
Tenet, which is based in Santa Barbara, Calif., expects to receive about $750 million in special payments this year.
Because the formula Medicare uses takes into account hospital prices in calculating these payments, Medicare reimbursements at a group of Tenet hospitals have risen sharply in recent years. Medicare compares a hospital's prices with its costs to help calculate these payments, and, in some cases, uses statewide averages in lieu of specific data.
"The bottom line is that this took us by surprise," Mr. Scully said. He added that the government expected to be able to make changes fairly quickly to its formulas, including its use of statewide averages.
"We are now aware of it, and we are going to fix it," he said.
While the issue was first raised publicly on Oct. 28 by an analyst at UBS Warburg in a research report on Tenet Healthcare, Medicare officials had also recently heard concerns that hospitals were able to increase their payments because of the way the formula worked, Mr. Scully said.
The insurer handling Tenet's Medicare claims also alerted regulators some time in the middle of October about that company's high level of reimbursements.
Although Mr. Scully said Medicare had not identified other hospital organizations that received similarly high amounts, he said Medicare officials were looking into whether other hospital groups may have also taken advantage of the system in similar ways. Teaching hospitals generally receive more because of the kind of cases they typically treat, and Medicare will look at those hospitals as well as other large hospital chains, he said.
Since Tenet told investors last Thursday that much of its recent growth was a result of these special payments and that it planned to be less aggressive in pricing, analysts and investors have been scrambling to try to assess the company's prospects. Tenet's pricing also affects how much it is paid by health plans. Shares of Tenet have been battered over the last two weeks and closed at $14.98 yesterday, up 98 cents.
While not alone in raising hospital prices, Tenet appears to be among the most aggressive, according to analysts and health plans. Last week, the company said it planned to conduct an extensive review of its strategy.
While analysts have played down the issue as a factor in evaluating hospitals, investors have shunned other hospital stocks in recent days. In response to growing concern over these payments and their importance to the health of hospitals, Universal Health Services, a hospital chain in King of Prussia, Pa., said yesterday that it expected to receive $12 million in special payments for Medicare in 2003.
"Given these facts, the company has limited exposure to potential changes" by Medicare to the formula used to calculate the payments, the company said.
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