Geographic Adjustment in Medicare Payment Phase I: Improving Accuracy (2012) / Chapter Skim
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3 Hospital Wage Index
3 Hospital Wage Index
Pages 61-84
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From page 61... ...
DETAILS OF THE HOSPITAL WAGE INDEX The HWI was first implemented in 1983 as part of the Inpatient Prospective Payment System (IPPS) , when Medicare moved away from cost-based payment and began to pay hospitals a set amount for each group of patients who are clinically similar.
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or a statewide non-MSA. Each labor market is assigned a specific index value, which is intended to reflect the variation in prevailing wage levels across labor markets.
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NOTE: CABG = coronary artery bypass graft; IPPS = Inpatient Prospective Payment System; MS-DRG = Medical SeverityDiagnosis Related Groups. a Most hospitals in this market, including Stanford, are reclassified to the Santa Cruz/Watsonville area.
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The mix of hours assigned to each occupation comprises the weight for each occupation. The weights are used to make the occupational mix 4 Contract workers include nurses, executive management, and other employees working under contract between an agency and a hospital.
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. BOX 3-1 Mechanics of the Hospital Wage Index with the Occupational Mix Adjustment Computing the hospital wage index involves a series of steps that use simple multipli cation, addition, and division.
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Multiply Clark Generals Hospital's total salaries and wage-related costs by the percentage of the hospital's total number of workers attribut able to the total nursing category and by the total nursing category's occupational mix adjustment factor (from Step 5)
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the current hospital cost report data, combined with the occupational mix survey data, and (2) data from the Bureau of Labor Statistics (BLS)
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. 1990: Annual hospital surveys are included in the cost reports (Dalton et al., 2002)
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2006: The U.S. Court of Appeals rules that CMS must immediately apply the occupational mix adjustment to 100 percent of the wage index instead of implementing the adjustment gradually (Bellevue Hospital v.
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Current Wage Index Data Accuracy As described above, the current wage index is computed from hospital employee wage data that are reported to CMS in annual hospital cost reports, and from a special occupational mix survey of hospitals conducted by CMS approximately every 3 years. For a number of reasons, these data do not produce an index that reflects the prevailing wages that hospitals face in their respective markets.
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In these markets in particular, the index can reflect hospitals' own decisions about what wages to pay rather than the prevailing wage in the area. Hospital cost report data contain information on both wages and benefits, such as health insurance and pensions, reported in dollar values.
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Because the cost reports are publicly available, a hospital can compute its own wage index, compare it with the indexes of other nearby hospitals, and plan for appeal through reclassification or other means. Timeliness Stakeholders have stated that hospital cost report data are dated.
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First, additional occupation-level data could be collected and reported in either the annual cost reports or the triennial occupational mix survey. Either approach would increase the administrative burden on both hospitals and CMS.
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The improved measurement of AHWs by occupation enabled by the BLS data produces an index that reflects the price of labor more accurately than an index generated with hospital data with a limited OMA. As reported above, several studies have shown that BLS data produce an index that better reflects prevailing wages in each area than cost report or OMA survey data (MaCurdy et al., 2009)
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. Unlike hospital cost report data, BLS data do not include benefits, an important component of the wage index because the portion of total compensation attributable to benefits varies systematically.
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The committee will address this issue in more detail in the phase 2 report, considering whether or not contract labor should be included and, if so, how to incorporate contract labor into an index using BLS data. BLS and CMS data are also different when they are compared according to their year-toyear volatility, with BLS data appearing to be more stable.
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For the committee's analyses, BLS calculated wage index values on the basis of unpublished data for the health care sector. RTI analyzed the correlation between the wage indexes calculated using BLS published all-industry data and wage index values calculated for IOM by BLS using unpublished health sector data.
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A Medicare Payment Advisory Commission (MedPAC) report that recommended using BLS data for production of the wage index suggested using 30 occupations (MedPAC, 2007a)
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Since all occupations are available in most labor markets in BLS health care sector data, it makes sense to use all occupations in the index construction and weighting, based on wage data from the health care sector. THE HOSPITAL WAGE INDEX AND OTHER FACILITIES Recommendations for improving the HWI for IPPS hospitals will also affect facilities other than short-term acute care hospitals.
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Although labor markets in metropolitan areas are defined primarily by larger IPPS facilities, labor markets in nonmetropolitan areas are typically governed by smaller establishments. Therefore, use of only IPPS hospital wages to calculate a wage index for nonmetropolitan areas in which most employees work at smaller establishments does not accurately reflect the type of labor that facilities other than short-term acute care hospitals provide or the wages that they pay (Dalton, 2007)
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hospital-only data; reduce the potential for hospitals to affect their own index values; and reward hospitals for efficient use of labor. The wages paid by all health care sector employers in the geographic area is a better measure of prevailing market wages than the wages paid only by acute care hospitals.
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Constructing the HWI using the BLS data would reduce the administrative burden on both hospitals and CMS. The occupational mix survey of hospitals could be eliminated, and the Worksheet S-3 that hospitals submit annually to CMS could be eliminated or shortened significantly.
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is currently applied to non-inpatient prospective payment system facilities, such as skilled nursing facilities, home health agencies, and ambulatory surgical centers. The current wage index does not accurately reflect the wage levels that these providers face because it is computed only from hospital wages, based on hospital labor shares.
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2007. Review of hospital wage data used to calculate inpatient prospective payment system wage indexes.
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