On October 6, 2011, the Provider Reimbursement Review Board released Decision No. 2012-D1 ruling on two issues related to proper calculation of “total paid hours” when calculating the wage index for hospitals in Cincinnati and rural Iowa. Both issues related to hour recorded as paid by the hospitals but not actually worked by employees. In both cases the hours at issue were used merely to calculate payments related to employees on short term disability or bonus payments to employees for working undesirable shifts (the “Baylor Plan issue”). In a consolidated decision for multiple years on both issues covering both the Cincinnati and rural Iowa wage index calculations, the Board unanimously ruled completely in favor of the appealing Providers. Keith Barber from Hall, Render, Killian, Heath & Lyman represented the appealing hospitals at the June 10, 2010 Board hearing on these issues originally identified by Dale Baker from Baker Healthcare Consulting.
Short Term Disability Issue
This issue focused on the proper counting of total paid hours when calculating the wage index when one of the hospitals in the MSA deviated from the usual practice of providing for employees on short term disability through insurance. Under this usual practice, costs related to paying premiums for this insurance are “wage related costs” included in the numerator of the wage index calculation. The hospitals at issue deviated from this usual practice in that they did not use insurance but paid short term disability out of payroll. To calculate the payments, the hospitals credited employees with hours worked that they did not work. The hospitals then sought to remove these hours from the wage index calculation during the wage index data correction process. Their fiscal intermediary refused prompting appeals to the PRRB.
The Board agreed that a prior case on the same issue involving Rochester, NY hospitals was persuasive. In ViaHealth of Wayne County v. Johnson, 2009 WL 995611 (W.D.N.Y. 2009) (a case also handled by Hall Render and Baker Healthcare Consulting), a United States District Court ruled in favor of the Hospitals in a dispute the parties to this case stipulated a “substantially similar” issue. Referring to the Board decisions leading up to the ViaHealth case the Board noted that this “short term disability issue … is not new to the Board.”
The Board found critical the distinction between costs deemed “salaries and wages,” for which there are corresponding paid hours, vs. “wage related costs” (such as payroll taxes, bonus pay and life and health insurance) for which there are no directly related hours worked. Citing Sarasota Memorial Hospital v. Shalala, 60 F.3d. 1507 (11th Cir. 1995) for the proposition that the wage index statute mandates consistent measurement of wage index data, the Board held that it was impermissible to treat costs related to short term disability as “salaries and wages” for some hospitals but “wage related costs” for others. Accordingly, the Board ordered that the short term disability costs for the hospitals at issue be treated as “wage related costs” with no corresponding matching of “paid hours” for those costs.
Baylor Plan Issue
This issue involved circumstances where hospitals recorded additional “bonus hours” for employees working undesirable (e.g., weekend or holiday shifts) as an incentive or premium. For example, employees might work a 12 hour weekend shift and be paid as if they had worked 18 hours. The real per hour wage costs for such an employee are obviously 50% higher with the extra hours credited merely a means to calculate that additional per hour payment. Once again, the hospitals involved attempted to remove these extra “bonus hours” during the wage index correction process, but the fiscal intermediary and CMS refused to allow them to do so. This had the effect of not recognizing the very real additional per hour costs required to incentivize employees to work such undesirable hours. Once again, consistency was an issue because hospitals that simply used the different accounting mechanism of multiple and higher per hour wage scales for such shifts would have these additional per hour costs recognized in their wage index determination.
For this issue, the Board found decisive CMS guidance in Provider Reimbursement Manual § 3605.2 that “no hours are required for bonus pay.” The Board noted that the additional hours originally recorded were “merely a mechanism that allowed the Provider’s accounting system to record its full outlay.” Again citing mandate for consistency in wage index measurement from the Sarasota case, the Board noted that such hours could be included for some hospitals but not for others.
Potential Administrator and Judicial Review
The CMS Administrator has 60 days to review these decisions, with the authority to affirm, modify or reverse them. If the Administrator does nothing, the decisions become final in 60 days. If the Administrator reverses the favorable PRRB decisions, then the Providers have the right to appeal the matter to federal court within 60 days of the Administrator’s determination.
For more information on this matter, contact Keith Barber at (317) 977-1428
or kbarber@hallrender.com.
