The UCSD Medical Center miscalculated its 2004 hospital wage costs to Medicare and Medicaid services, an error that could have potentially cost the federal government agency approximately $48 million in its 2007 payment to 18 hospitals in the University of California system, according to a recent report by the Office of Inspector General of the U.S. Department of Health and Human Services.
UCSD Medical Center made mistakes in its interpretation of Medicare hospital wage costs that led the center to overreport costs by $48 million.
The three-year interval between the 2004 calculations and the finalization of those figures in 2007 allowed agency officials to review and correct mistakes — like the $48-million overcharge for pension costs — as well as settle any disputes from the medical center over the findings of these mistakes.
According to the report, the current Medicare hospital payment system is based o n predetermined rates, which include costs for pension and postretirement wages. The OIG claimed that the medical center failed to adhere to the system, grossly overstating its average hospital employee’s hourly rate due to inaccurately calculating pension benefit amounts.
Specifically, the OIG reported that the medical center overstated pension wage costs by $22 million, and overstated postretirement wage costs by $25 million. The newly-issued corrections propose a 19-percent decrease from the UC-released hourly wage averages, from $41.74 to $33.75.
The medical center, though, refuted the agency’s accusations of miscalculation. In a written statement to the OIG, the center claimed that it determined costs using generally accepted accounting principles.
Furthermore, June 2003 changes to the accounting manual used to estimate the hospital’s reimbursement were “ambiguous,” according to the medical center’s statement, and a 2005 Federal Registrar request to liquidate pension and postretirement accruals complicated rather than clarified GAAP policies.
The medical center argued that the OIG’s claim of miscalculation was based on policy changes that were applied after inspections were made, and therefore, the medical center cannot be faulted in its wage reports.
“The Medicare wage index is used in determining a portion of Medicare payments we receive for med. patients,” said Bob Hogan, chief financial officer for the UCSD Medical Center. “Every part of the country pays different wages, and Medicare tries to adjust their index according to these differences.”
Medicare payments are determined by other factors as well, such as facility and construction fees; the two changes collectively account for Medicaid and Medicare fees used to treat Medicare patients in UC hospitals.
Complications arise, however, when Medicare tries to calculate the costs of pension benefits, according to Hogan.
“Pension benefits are considered part of costs paid of employees,” Hogan said. “It has to do with what your liabilities are and future liabilities, as opposed to payments going toward payment funds.”
The uncertainty of future legal responsibility makes it difficult to define wages.
Often, Hogan said, “It’s a difference of opinion on how to count pension costs.”
UC officials insist that their estimations were in compliance with Medicare regulations and guidance.
“Because the UC pension plan was fully-funded at the time of the 2004 wage report, the OIG’s view is that UC medical centers did not actually incur a cost or liability — i.e., UC costs are ‘covered’ by the pension plan surplus and therefore, do not represent actual costs,” UC Office of the President spokesman Paul Schwartz stated in an e-mail.
In defense of the center’s methodology in measuring wage costs, Hogan said he is skeptical of the consistency of federal officials’ conduct.
The difference in opinion within the federal system perplexed medical center officials.
“We were working closely with Medicare services to explain financial accounts,” Hogan said. “But the Office of Inspector General did a review on an audit, and came up with a different conclusion.”
Despite frustration, the UCSD Medical Center has agreed to accept any change in wage estimates, and currently there is no possibility of a lawsuit.
“While we could appeal a decision to fight it, it was best to comply at this time,” Hogan said.
Adjustments to GAAP procedures signify a change in how Medicare will report wage-related costs in the future.
“While this represents a lost revenue opportunity, it does not represent any actual financial loss or necessitate repayment of UC funds,” Schwartz stated.
The revised reporting protocol applies not only to the UCSD Medical Center, but to all five medical centers within the UC system.
Readers can contact Sonia Minden at [email protected].