JOHNSON CITY, Tenn. (WJHL) — A recent court decision surrounding Medicare payments could cut Ballad Health’s annual revenues by about $18 million, Ballad CEO Alan Levine said Thursday.

A 2019 change to what’s known as the “Medicare Wage Index” was intended to redress a trend that was seeing hospitals in the lower quarter of that index fall further and further behind in their ability to pay competitive salaries.

The index traditionally was calculated based on surveys of how much hospitals pay, with the higher-paying hospitals getting higher Medicare reimbursements.

Then-First District Tennessee Congressman Phil Roe and then-Senator Lamar Alexander both pushed for the change, which brought a “floor” to the indexed amount for the hospitals in the bottom 25% of the index. The Centers for Medicare and Medicaid Services (CMS) made that change “budget neutral” by reducing the index for hospitals in the top three-fourths of the wage index values.

“Ballad literally wrote the language (used by CMS),” Levine told News Channel 11. “We’re the ones that lobbied for that.

“The hospitals that were the losers, in Boston and New York, they sued CMS a couple years ago and the court just ruled against CMS. They’re not taking it back (the payments since 2019), but going forward that’s about an $18 million hit to us on an annualized basis.”

Since a “Medicare Wage Index” boost in 2019, Ballad Health’s labor costs have gone up by 14%. The $18 million annual increase in Medicare reimbursement helped offset that but could go away following a court decision. (WJHL Photo)

The decision in Bridgeport Hospital et. al. v. Becerra in the District of Columbia U.S. District Court left the door open for a possible “remedy” by CMS that could still salvage gains for the systems like Ballad, which has the country’s second-lowest wage index. The decision could also be appealed.

But Levine said in the meantime Ballad faces the prospect of continuing to pay wages that increased by 4% for nurses in the immediate aftermath of the 2019 decision. Through three quarters of fiscal 2019, Ballad’s labor plus contract labor costs were $538 million. Through three quarters of the current fiscal year, they were $616 million — a 14% increase.

“We took the money in good faith and did exactly what it was intended for,” Levine said. “We gave it to our staff. And then three years later they take the recurring money away.”

Everyone knows it’s a problem

The court likely left open a door for some type of solution because the wage index issue has plagued rural hospitals for years. The U.S. Department of Health and Human Services, CMS’s parent agency, sought public comment on how the wage index is calculated.

According to an article about the Bridgeport decision in a Ropes and Gray law firm release, when HHS proposed the new rule in 2019 it referred to a “downward spiral” that left lower wage hospitals unable to move up the index.

“HHS, and several commenters, saw this as a concern because in their view providers in low-wage areas may need to reduce expenses in other areas to keep up…causing hospitals with low wage index values to be in financial distress and face potential disparities.”

While Ballad remains in solid financial standing, Levine said the reduction will have a sharp impact and added that the impact will be more severe in some areas.

“It’s now predicted that more than 450 rural hospitals will close because rural regions are getting negatively affected,” he said. “Rural regions, because of their wage index, they can’t compete for labor.”