WASHINGTON – The federal government is preparing to dole out $400 million in extra Medicare money to low-spending hospitals around the country, thanks to an 11th hour provision added to the sweeping health reform law to win over a handful of wavering lawmakers.

Connecticut hospitals won’t see a dime of that money, but other hospitals around the country are preparing for a tidy windfall from the $400 million pot–a bonus fund that critics say runs counter to Congress’s stated intention of curbing health costs.

“All the research [on controlling health care costs] says that high-cost areas should be penalized,” said Gerard Anderson, director of the John Hopkins Center for Hospital Finance and Management.

The assumption, he said, was that in high-cost areas, patients and doctors must be overusing health care services. And while there is some research to back that up, he said, there’s no evidence of the opposite–that in low-cost areas, patients and doctors are under-using medical services.

But lawmakers couldn’t bring themselves to use sticks against the high-cost areas, he said, so instead they gave out some carrots to the low-cost ones.

At issue is a small provision included in the health care reform bill, signed by President Obama in March, which requires extra federal Medicare payments to be made to hospitals in counties that have the lowest per capita Medicare spending in the country. The figures were adjusted for age, sex and race but no other factors.

Medicare payments have long been a sore point among some lawmakers, particularly from the Northwest and Midwest. They complain that their states have lost out on millions of dollars in needed funding because of disparities in the way the federal government doles out money for Medicare, the nation’s health insurance program for the elderly.

Medicare pays hospitals different amounts for the same services, depending on whether the institutions serve a large number of uninsured patients, whether they have teaching programs, and other factors that drive up costs. Proponents of this system say it makes sense because more expensive regions or programs need extra resources, while detractors say it’s inequitable.

Several key lawmakers, including Rep. Norm Dicks, D-Wash., said they would not vote for any health insurance overhaul unless the disparities were addressed. In response, congressional negotiators came up with a fix that channels extra dollars to hospitals in regions that appeared to be providing efficient care, based on low per capita Medicare spending. Proponents said it would end a penalty on institutions that delivered high-quality care at reasonable costs.

To implement the provision, the federal Centers for Medicare and Medicaid Services recently published a proposed rule, detailing how the extra $400 million would be divvied up among hospitals in counties that rank in the lowest 25 percent for Medicare spending.

So, for example, 13 low-cost hospitals in Missouri are slated to receive a combined $7.5 million in extra payments in 2011 under the proposed rule, published June 2 in the Federal Register. And in upstate New York, 51 such hospitals will benefit from the provision, to the tune of about $17.3 million.

These hospitals are “capital starved,” said William Van Slyke, a spokesman for the Healthcare Association of New York State. This extra money will help pay for “lots of services and staff,” he said.

Connecticut was among a handful of states that had no eligible counties. Stephen Frayne, of the Connecticut Hospital Association, said the key reason is the higher wages paid to health professionals in the state. Those costs ensured that Connecticut would not have any counties that met the low-cost criteria.

Frayne said the provision seems a “little odd,” noting, among other things, that the lowest-spending counties are not necessarily the most efficient at providing health care. But, he said, “they were able to argue that they should be rewarded and get extra resources, and I’m sure they need them.”

Even as Van Slyke, of the New York hospital group, welcomed the extra funding, he said it was far from clear the new health care law would improve the way Medicare money is distributed. For one thing, he noted that other parts of the bill call for cuts to the Medicare Advantage program, which uses private companies to deliver Medicare services, so in his view, the bill takes “one step forward and two steps back.”

Moreover, he and others said it’s very difficult to determine which hospitals deserve the “high-cost” label without looking at a set of highly complicated issues, such as poverty and other demographic data of the populations served. He said he understands why Congress wanted to use rewards instead of sticks, because if Congress had tried to punish high-cost hospitals without looking at those factors, it could have ended up hurting patients most in need.

“You really don’t understand all the unintended consequences of all this stuff,” he said.

To be sure, critics say the provision to give extra Medicare money to low-spending regions will do little to encourage efficient, high-quality care. Nor will do much to curb overall health care costs, since it relies on rewards instead of penalties.

“There is no justification showing that giving more money to the lost-cost areas has any benefit,” Anderson said.

So to his mind, the provision makes little sense. Unless you look at the politics involved.

“It was the last provision added, almost totally to get another three or four members of the House on board,” Anderson said.

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