CMS claws back Medicare payments from hospitals that own nursing schools

The error

In the late 1990s, when Congress created what is know called Medicare Advantage, it also set up a funding stream to help cover training at hospital-owned nursing schools. While Congress directed CMS to cap the funding at $60 million per year, the agency failed to do so. Funding exceeded the cap by 2008, and by the time the error was recognized a decade later, CMS had already overpaid hospital-owned nursing schools by $310 million and underpaid physician training programs by that amount. The agency discovered the problem when Graduate Medical Education programs, which shares the pool of funding with the nursing schools, realized they were underpaid,

The looming repayment date has left many nursing schools scrambling to fill unanticipated holes in their budgets.

“There aren’t very many organizations for which $10 million isn’t a lot of money,” said Nate Brandstater, president of Kettering College, which graduated 45 nurses in winter of 2021.

That is half of the college’s annual revenue. Kettering Health, a not-for-profit health system in Ohio that owns the college, had $49 million in operating income in fiscal year 2021 with a 2.9% operating margin, might be able to help with the costs, but there are competing priorities.

“Our healthcare enterprise has got to think ‘we can hire our graduates of our own college or we can hire graduates of other colleges, and what do we want to spent $10 million on? Do we want to continue providing this service or do we want to provide other kinds of services?” Brandstater said.

Kettering Health spokesperson Michelle Day said in a statement it is committed to supporting the college.

“This commitment will be more challenging to fulfill in light of the federal funding cuts and of the payment reductions yet to come. We are committed to working sustainably to protect these programs,” Day said.

CMS is unlikely to recoup the full $310 million in overpayments because it can legally only review cost reports that have been closed for three years or less and ones that are actively being negotiated.

That means some schools will face larger clawbacks than others, Meade said.

“We unfortunately had a lot of open years,” she said, referring to Wellforce.

The situation has left many hospitals unsure of how much they owe or what they need to pay back. A CMS spokesperson said the net impact on hospitals will not be known until Medicare administrative contractors review eligible cost reports and reconcile payments. That process is expected to be completed by June.

The spokesperson said if providers can’t pay their debts on time, they might be eligible for an extended repayment schedule.

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