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Knoxville and surrounding regions to benefit from new rule passed regarding Medicare Wage Index

August 7, 2019

Government passes new rule regarding hospital Medicare reimbursement program

The federal government has passed a new rule stabilizing the payment structure that controls a hospital’s compensation from Medicare payments. This structure, called the Medicare Wage Index, was originally designed to consistently and fairly distribute payments to hospitals across the country, taking into consideration factors like labor cost and other wage-related documentation. Over time, a disparity occurred that has created significant variation in payment that did not fairly recognize cost increases in all markets, including those in the bottom 25th percentile.

The agency said the new rule, which will go into effect October 1, will assist rural and other low-wage hospitals in attracting and maintaining a highly skilled workforce, which it said will strengthen competition and lead to greater patient choice.

In its statement, the agency noted that rural areas are seeing hospitals close at an alarming rate, saying there have been more than 100 hospital closures since 2010.  In fact, Tennessee has seen the second highest rate of hospital closures in the nation.

While it is not yet fully known how the new budget neutrality provision will impact the health system, Covenant Health executive leadership, its board of directors and many community stakeholders including Tennessee lawmakers and representatives consider the passing of the change to the Medicare Wage Index a huge victory for the Knoxville area market and other states and areas who need and deserve this improvement. Many Covenant Health employees even contacted legislators or the Centers for Medicare and Medicaid Services themselves alerting them of this issue.

“Congratulations and thank you to everyone for your engagement and submitting a letter of support on this issue,” said Jim VanderSteeg, President and CEO of Covenant Health. “I especially wish to thank all of our employees who personally advocated for this important change.  There is still the potential for delays; however, this is very positive and creates the additional momentum necessary to make this much needed change.  It is estimated that Covenant Health provided approximately 75% of all the letters submitted in support of this. You made the difference!”

“As the region’s largest employer, Covenant Health has member hospitals across East Tennessee and provides more than $66 million in charity care each year.  To fulfill our mission of improving the quality of life in our region through better health, a fair rate of Medicare reimbursement is critically important to our health system. Our Medicare payment levels were in dire need of improvement and balancing with the rest of the country to ensure a vibrant economy and quality of life,” VanderSteeg said. “Covenant Health provides much-needed medical specialties in our communities, even when those specific services operate at a financial loss to our health system. Ultimately, our goal is to provide quality healthcare throughout the region, so we are pleased with this new rule.”

About Covenant Health
As the area’s largest health system with services in 23 Tennessee counties, Covenant Health is committed to delivering excellent medical care in local communities. The health system includes 10 hospitals and numerous outpatient services and locations, making quality care accessible to people throughout the region. Visit

Debby Saraceni
Vice President of Marketing and Physician Services
[email protected]