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Published April 04, 2010, 12:00 AM

Frontier strategy pays off for North Dakota: Doctors receive better wages under amendment

For years, North Dakota’s hospitals and clinics pleaded for fairness in Medicare payments that essentially punished them for providing cost-effective care.

By: Patrick Springer, INFORUM

For years, North Dakota’s hospitals and clinics pleaded for fairness in Medicare payments that essentially punished them for providing cost-effective care.

Their arguments were met with some sympathy but no results – until the recently passed health care overhaul.

Now, North Dakota’s six largest hospitals, including two Fargo medical centers, collectively will receive a boost of $65 million a year.

An amendment tucked into the 2,700-page Patient Protection and Affordable Care Act – better known as the health reform package – is aimed at addressing payment disparities based on geography.

The provision had its spark four years ago, when a team at MeritCare in Fargo decided they had to do something to avert a looming fiscal crisis.

They worked together with three other major medical centers in North Dakota – Altru in Grand Forks, Medcenter One in Bismarck and Trinity in Minot – on an approach that came to be known as the Frontier strategy.

The problem: Under Medicare formulas written in 1965, the wage index for paying health providers in rural states was set much lower than for urban areas. Over the decades since, once relatively minor differences have compounded.

“As time went by, it was getting to be more and more of a critical issue,” said Lisa Carlson, corporate chief financial officer for Sanford Health & MeritCare.

The disparity meant, for example, that the wage index for North Dakota providers ranged from 77 cents to 84 cents, with $1 as the national average. By contrast, hospitals in St. Cloud, Minn., were paid $1.24 and $1.06 in Minneapolis.

The marketplace for physicians and certain other medical specialists, however, is national. MeritCare must compete nationally for talent, Carlson said.

Similarly, the purchase cost of medical technology, such as sophisticated scanners, is not discounted for rural providers, she said.

Because health centers must pay people – 60 percent of their budget – as well as utilities and supplies, the cost squeeze meant deferred maintenance and difficulty staying current with technology, said Jerry Jurena, president of the North Dakota Hospital Association.

Ultimately, government and private payers want to shift from paying hospitals and doctors for performing procedures to paying for better outcomes. Health reform is moving in that direction, but the switch likely remains years away, Jurena said.

Integrated medical systems, including MeritCare and Innovis in Fargo and Altru in Grand Forks, bring together doctors and hospitals in one organization and offer a more efficient way of delivering health services.

As a result, they are well positioned for the day when medical payers reward results rather than procedures – but faced a worsening cost squeeze because of the Medicare formulas.

“We needed a bridge in our payment system,” Carlson said.

Enter what became known as the Frontier states strategy, a proposal to provide Medicare payment fairness to North Dakota, South Dakota, Montana, Wyoming and Utah.

Proposing changes for a group of states, instead of merely North Dakota, helped to build a political coalition in Congress, said Martha Leclerc, a MeritCare vice president and one of the Frontier strategy’s authors.

And by limiting the provision to only a few sparsely populated states, proponents were able to restrain the cost and therefore win support.

Important ammunition in persuading skeptical members of Congress came from a consultant’s report that found average Medicare reimbursement in North Dakota was 9 percent below the average of seven neighboring states, said Bev Adams, an associate general counsel at MeritCare who lobbied for the provision.

“That was a huge step forward,” she said.

North Dakota’s congressional delegation – Sens. Kent Conrad and Byron Dorgan as well as Rep. Earl Pomeroy – played key roles in passing the legislation, MeritCare representatives said.

Passage of the Frontier amendment in the health reform bill means wages for doctors and others at North Dakota’s major hospitals and clinics now equal the national average in Medicare’s wage index.

“Does that put us on par with Minnesota? Not really,” Jurena said. “But it helps. It helps tremendously.”

As a result, the increased revenues will help to maintain adequate staffing, technology and infrastructure at the medical centers, he and Carlson said.

North Dakota’s 36 rural hospitals, all designated as critical access hospitals, already were guaranteed a wage floor to ensure adequate funding to maintain services.

But the six major medical centers serve as referral hubs for 85 percent of all health care delivery in North Dakota, Leclerc said. So the impacts reach every corner of the state.

Readers can reach Forum reporter Patrick Springer at (701) 241-5522