Inside this week's landmark health care reform bill is a piece of good news for Western Pennsylvania hospitals and, by extension, their employees.
By October 2012, the wage index formula used to establish Medicare reimbursement rates will be effectively flattened so that no area of the country gets significantly higher rates than other areas.
For years, Western Pennsylvania hospitals have seen their reimbursement rates decline while other areas have fared better, sometimes inexplicably.
The current wage index, for example, gives a higher rate to Cleveland than Pittsburgh, and Harrisburg is rated higher than either of those cities. According to the Medicare index, Pittsburgh wages are on par with Elizabethtown, Ky., and Laredo, Texas.
Over an eight-year period, the Pittsburgh region's wage index dropped 13.9 percent, costing the region's hospitals about $300 million in Medicare reimbursements.
The wage index establishes how much money an area receives as reimbursement for wage costs, based on a formula that factors salaries of hospital employees, plus pensions and other labor costs. If one area's rate goes up one year, another area's will go down.
Because of the declining reimbursement rate in Western Pennsylvania, the region's hospitals received less money for treating Medicare patients -- $62 million less than if they were wage indexed at the same level as Harrisburg, $35 million less than if they were rated the same as Cleveland.
That, in turn, has meant the region's hospitals have less money to pay employees, driving their index down further into what A.J. Harper, president of the Hospital Council of Western Pennsylvania, once called "a death spiral."
Western Pennsylvania hospitals get hit particularly hard because, while they may pay wages below the national average, they are treating a disproportionately high percentage of Medicare patients because of the region's older demographic.
Because Medicare reimbursements often don't cover the costs of treatment, the lower wage index puts the region's hospitals under increased financial pressure, limiting their ability to offer their employees raises as well as cover other expenses.
Attorneys Scott Malan and Nancy Bell of the Harrisburg law firm, Stevens & Lee, were hired by the hospital council to address the wage index issue. They said that while the federal Centers for Medicare and Medicaid Services administers the index, Congress sets the rules, opening the process to political influences.
Over the years, metropolitan area groupings got modified, so a hospital hundreds of miles outside of New York City might get included in New York City's higher wage index. Ms. Bell said one North Dakota hospital shares Fargo's wage index rate even though it is 400 miles away.
"The system has gotten so convoluted," said Mr. Malan, "that the one thing that most people agree on is that it doesn't work."
Beyond those obvious disparities, he said, the current formula also unfairly punishes regions that operate efficiently and keep costs down while higher cost areas such as New York and California tend to see their wage index rates go up.
Under the new system, areas will be grouped along county lines, and the Centers for Medicare and Medicaid Services will begin using more current Bureau of Labor Statistics data so that the disparity between the highest and lowest indexes will be narrowed.
"This levels the playing field based on good research and good data," Mr. Malan said.
But the new wage index may not go into effect for 18 months, so hospital council officials are also hoping to find an interim fix by getting Pittsburgh hospitals temporarily grouped with either Cleveland or Harrisburg.
While Pennsylvania Sens. Arlen Specter and Bob Casey helped get the wage index changes into the health reform bill, the hospital council's champion for an interim solution was U.S. Rep. John Murtha, of Johnstown, who died Feb. 8 from complications following gallbladder surgery.
The idea of short-term reclassification has bipartisan support, Mr. Malan said, but "it doesn't help" that they won't have Mr. Murtha's considerable clout behind the effort.
Steve Twedt: email@example.com or 412-263-1963.