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Wills Eye in Medicare dispute

Wills Eye Hospital and Medicare are in a heated licensing dispute centered on the ratio of inpatient to outpatient services a facility must provide to qualify as a hospital. Both sides say the outcome could have "cataclysmic" consequences.

Three years ago, Wills finished a $6.5 million renovation of its building at Ninth and Walnut Streets in  Center City, including the addition of four inpatient beds in what had been licensed as an ambulatory surgery center.

The final step was getting the centers for Medicare and Medicaid Services, commonly known as CMS, to swap Wills' surgery center license for a hospital license.

CMS balked, arguing that Wills has too little inpatient business to justify a hospital license, which comes with significantly higher Medicare reimbursement rates than a surgery center license.

Wills has lost at two appeals. It received a Medicare termination letter this week, effective Nov. 1. Wills can appeal to federal court.

"Because the financial impact of Medicare hospital certification is so great, CMS is required to be really careful about determining which providers genuinely qualify under the Medicare program," CMS attorney Suzanne Yurk argued at an Aug. 11 hearing, a  transcript said.

According to the Ambulatory Surgery Center  Association, Medicare pays hospitals $1,745 for an outpatient cataract surgery while paying surgery centers only $976 for the same surgery.

"So I respectfully submit that cataclysmic results would occur if CMS were required to open the door to Wills Eye and certify them as a Medicare hospital. Cataclysmic results would occur if CMS were required to offer any [ambulatory surgery center] that wanted to get more in reimbursement and become a hospital by adding a few inpatient beds," Yurk said.

CMS said in a statement Friday that it is continuing to work with Wills: "The facility will be allowed to continue receiving Medicare reimbursement if it submits an acceptable plan of correction by November 1."

What that means is that Wills has to stop providing services expected to exceed 24 hours.

If Wills, which had $51 million in net patient revenue in the year ended June 30, 2015, were licensed by CMS as a hospital, all of its outpatient business would be paid at the higher hospital rate. Will had operating losses of $5.9 million in fiscal 2015 and $9.5 million in fiscal 2014.

But Wills chief executive Joseph P. Bilson said the money is not the point. Wills decided to bring its most complex surgeries and inpatients in-house from a nearby Thomas Jefferson University Hospitals building because it wanted to provide world-class care and Jefferson was increasingly using the space for neurological procedures.

"They don't even have all of the equipment that it would need to take care of the breadth of patients that we have," Bilson said.

CMS does not have a numerical standard for what qualifies as a Medicare hospital. Instead, it decides case by case, relying on regulations that say as hospital must be "primarily engaged" in inpatient care.

Documents in the Wills appeal say that if the facility's four beds were filled every day, inpatients would account for 17 percent of cases at Wills.

Wills' attorney, Mark Gallant, of Cozen O'Connor, said at the August hearing that broadly adopting such a standard would have "catastrophic and cataclysmic consequences" because it would exclude "a big chunk" of hospitals from Medicare.

A key competitor, Massachusetts Eye & Ear in Boston, also has a very low rate of inpatient cases on the eye side of its business, but the ear side may be the reason it is licensed as a hospital.

If Wills losses its fight with CMS, "some of these complicated patients would probably end up going to places like New York, Miami, Boston," Bilson said.

Stephen K. Klasko, chief executive of Thomas Jefferson University, whose medical school is Wills' academic affiliate, said he doesn't understand why CMS is picking on Wills: "With all the problems in health care, do we really believe that Wills' four beds are an issue?"