Geographic Adjustment in Medicare Payment Phase I: Improving Accuracy (2012) / Chapter Skim
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4 Smoothing the Borders of Labor Markets and Payment Areas
4 Smoothing the Borders of Labor Markets and Payment Areas
Pages 85-112
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From page 85... ...
Some neighboring providers who know that they compete for the same labor will find themselves classified into different wage areas and subject to different geographic adjustment factors. If the wage index values are very different on either side of labor market borders (what are sometimes called "wage cliffs")
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From page 86... ...
Lugar counties are nonmetropolitan counties located at the edges of non-MSA rest-of-state labor markets, where there is documentation that a substantial part of the population commutes into the neighboring MSA.1 Hospitals located in a Lugar county are "deemed urban" and automatically re-reclassified into the neighboring MSA.2 The most common type of labor market adjustment is reclassification granted through the Medicare Geographic Classification Review Board (MGCRB)
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From page 87... ...
It is actually an index floor for urban hospitals because it establishes that MSA index values within each state cannot be any lower than the state's nonmetropolitan index value.5 3 The Medicare Geographic Classification Review Board, Section 412.63. 4 Section 505 of P.L.
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From page 88... ...
. These set a lower limit of 1.00 on index values for any labor markets located within five states that have very low population densities (referred to as "frontier states")
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From page 89... ...
A positive-only adjustment algorithm will raise the national aggregate wage index. Therefore, MedPAC also applied a budget neutrality adjustment to the wage index values of all providers, to offset the payment effect of the positive contiguous-county adjustments (see Box 4-1 for discussion of budget neutrality adjustments)
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From page 90... ...
average of all the individual market index values should always be 1.00. Whenever an administrative change is made to any of the original individual index values, however, the weighted average of the altered index will change, becoming greater than or less than 1.00 according to the net effect of the adjustments.
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From page 91... ...
Following the Medicare Payment Advisory Commission's model, only positive adjustments were made. This created a need for offsetting index neutrality adjustments ranging from –0.3 percent, when an 85 percent standard was used, to –3.6 percent, when a 95 percent standard was used (see Box 4-3 for a further description of budget neutrality adjustments)
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From page 92... ...
Labor markets are also influenced by factors such as topography, transportation, demographics, and location of commercial centers. An analysis of the contiguous-county smoothed index values against the actual hospital hourly wages revealed that slightly more hospitals
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From page 93... ...
would meet the current wage comparability criteria for reclassification using smoothed index values than meet them using unsmoothed values. If hospitals' actual average hourly wages are considered indicative of a market, then these results would not provide strong support for the notion that contiguity necessarily implies shared labor markets.
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From page 94... ...
County commuting patterns also serve as the basis for the Section 505 outmigration adjustment, as discussed earlier in this chapter and in Chapter 1. Where CBSAs are based on commuting patterns of all workers, the outmigration adjustment is based on the specific commuting patterns of hospital workers.
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From page 95... ...
Simulation Options The committee reviewed simulations that estimated the impact of commuting pattern– based smoothing on both the CMS wage index and a new index constructed from the May 2010 release of BLS Occupational Employment Statistics (OES) data.10 Models were run using the out-commuting percentages, consistent with the approach used by CMS for its Section 505 out 10 All models using BLS data are based on hospital wage indexes constructed for the committee by BLS staff in order to incorporate published and non-published data.
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From page 96... ...
The models used out-commuting patterns for 1,585 counties matched to the location of 3,468 hospitals identified in the FY 2011 IPPS Impact File.11 Several design issues need to be decided in order to implement this approach to smoothing. Many of them are similar to the issues addressed by CMS when the Section 505 outmigration adjustments were introduced: 11 One county within the Los Angeles area had no commuting data from 2000, although five hospitals were located in this county in 2011.
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From page 97... ...
For each target county, RTI computed the number of resident workers who com muted out of the county for a job in a hospital, and identified the wage index applicable to each of the counties to which resident workers were commuting. An adjusted wage index for the target county is computed as the worker-weighted average of the wage index values for each county where its resident hospital workers are employed.
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From page 98... ...
NOTE: Left figure: The percentages indicate the portion of hospital workers residing in County A who work in each county. Right figure: The percentages indicate the portion of hospital workers residing in County D who work in each county.
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From page 99... ...
In the simulations run with CMS index values, 64 percent of the counties with IPPS hospitals had at least some resident hospital workers commuting to another MSA or non-MSA rest-ofstate market and, therefore, could be affected by smoothing based on out-commuting (see Table 4-5)
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From page 100... ...
SOURCE: RTI Analysis of FY 2011 wage index data, 2000 census hospital worker commuting data, and BLS-constructed hospital fixed-weight index using 30 occupation codes and all-employer hourly wages from May 2010. number to 36 percent.
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From page 101... ...
hospital. SOURCE: RTI Analysis of FY 2011 wage index data, 2000 census hospital worker commuting data, and Bureau of Labor Statistics (BLS)
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From page 102... ...
hospital. SOURCE: RTI Analysis of 2000 Census hospital worker commuting data and BLS-constructed hospital fixed-weight index using 30 occupation codes and all-employer hourly wage from May 2010.
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From page 103... ...
Hospitals counted in wage index floor areas are only those whose wage index is affected by the floor. SOURCE: RTI analysis of FY 2011 wage index data, 2000 census hospital worker commuting data, and BLS-constructed hospital fixed weight index using 30 occupation codes and all-employer hourly wage from May 2010.
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From page 104... ...
104 GEOGRAPHIC ADJUSTMENT IN MEDICARE PAYMENT Average Change in Pre-Reclassified Index Values No Adjustments Frontier State Floor MSA w/Rural Floor MGCRB Reclass Sec 505 Outmigration Lugar County 0 1 2 3 4 5 Percent Change All Counties, No Thresholds Applied 10% Commute Threshold Applied 10% Threshold Applied, Positive Changes Only Average Change in BLS Index Values No Adjustments Frontier State Floor MSA w/Rural Floor MGCRB Reclass Sec 505 Outmigration Lugar County 0 1 2 3 4 5 Percent Change All Counties, No Thresholds Applied 10% Commute Threshold Applied 10% Threshold Applied, Positive Changes Only FIGURE 4-3 Impact of out-commuting smoothing under three design options, computed across hospitals grouped by current wage index exception status. Figure 4-3
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From page 105... ...
It is also possible to implement this technique using only the area wage index values for the central point and all individual hospital adjusted points; the second implementation would capture varying levels of influence across labor markets based on location within markets, but it would not capture the influence of the central point within the market. The committee reviewed simulation results from the second IDW implementation just described, using the existing FY 2011 pre-reclassified wage index as its base.
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From page 106... ...
Under the current system of reclassifications and adjustments, the wage index is increased by 1 percent or more for about 29 percent of hospitals, while very few hospitals have decreased index values beyond the effect of the budget neutrality adjustment.12 Because the IDW approach computes both positive and negative adjustments it is largely self-weighting, and should not require an offsetting national index neutrality adjustment. Put another way, IDW smoothing is "locally neutral." Review IDW smoothing based on the existing wage index values is successful in reducing wage cliffs and should therefore also reduce perceptions of boundary issues among providers.
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From page 107... ...
CMS Final Indexb Indexb Pre-reclassified Index Impact on Index Value Number Percent Number Percent Number Percent Decrease of more than 10% 4 0.1% 31 0.9% 113 3.3% Decrease of 10% to 5% 12 0.4% 220 6.5% 449 13.2% Decrease of 5% to 1% 13 0.4% 735 21.7% 983 29.0% Change from –1 to +1 % 2,353 69.4% 1,273 37.5% 1,124 33.1% Increase of 1% to 5% 431 12.7% 448 13.2% 349 10.3% Increase of 5% to 10% 279 8.2% 440 13.0% 259 7.6% Increase of more than 10% 299 8.8% 244 7.2% 114 3.4% Total 3,391 100.0% 3,391 100.0% 3,391 100.0% NOTE: Geospatial smoothing implemented using ARC-GIS 10.0 software with default weights set proportional to the inverse of the square of the distance between hospital pairs, within a fixed maximum search radius of 25 miles. a Number of IPPS hospitals identified in the FY 2011 IPPS Impact File and included in all three indexes.
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From page 108... ...
Focuses on markets rather than No Yes Yes No No Somewhat Yes individual facilities Avoids use of hospital-specific criteria No Lugar counties Not Yes No Yes Yes or costs only completely NOTE: GIS = geographic information system.
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From page 109... ...
Commuting patterns of health care workers are an indication of overlap and economic integration of labor markets across their geographically drawn boundaries. Implementing the adjustments based on commuting patterns of all health care workers, as opposed to hospital workers only, would incorporate the contribution of labor employed by physician offices and other health providers, and it would acknowledge a growing degree of integration in the workforce across clinical practice settings.
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From page 110... ...
The committee's recommendations for revising the wage index and the Geographic Practice Cost Indexes (GPCIs) , adopting more accurate labor markets, and smoothing labor market boundaries based on commuting patterns should reduce the need for special exceptions.
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From page 111... ...
:48916. MedPAC (Medicare Payment Advisory Commission)
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