HHS Secretary Kathleen Sebelius recently submitted a plan to Congress that would reform Medicare's hospital wage index by establishing a labor market area and wage index for each hospital.
The report, which was required under the Patient Protection and Affordable Care Act, outlined the recent history and proposed reforms to the Medicare hospital wage index system and explained the concept of the Commuting Based Wage Index.
Currently, the federal government utilizes hospitals' cost reports to determine average hourly wage and the wage index, which is used to adjust payments within the Medicare inpatient prospective payment system. Hospitals can apply for seven reclassifications and exceptions for a higher wage index area and, consequently, higher Medicare payments. In addition, the hospital wage index establishes wage indices for hospital labor market areas instead of individual hospitals.
Critics of the current system argue the current parameters do not reflect the true costs of labor for any given hospital, especially for those located in the extremes of the labor market boundaries.
HHS proposed the CBWI, which "takes into account hospital hiring patterns in calculating the wage index by using commuting data to establish a labor market area and wage index value for each hospital," according to the report. The CBWI would use smaller labor market areas and only uses wage data from hospitals that actually employ workers in its respective area.
Overall, HHS had five major findings if the CBWI were implemented:
1. The CBWI would yield wage index values that more closely correlate to actual labor costs.
2. A more up-to-date reporting system for collecting commuting data from hospitals would need to be adopted if a CBWI were instituted in order to more accurately reflect the commuting patterns of hospital employees.
3. Concerns over a CBWI leading to hospitals altering hiring patterns or distorting labor markets do not appear to be worse than those under the current wage index system.
4. All current statutory provisions and exceptions to the Medicare wage index would have to be reviewed for relevance.
5. If a CBWI were adopted in a "budget-neutral manner," payments for some hospitals would inevitably increase, while payments for others would decrease.
Secretary Sebelius wrote that the implementation of a CBWI would most likely require statutory and regulatory changes, and it is expected that revised hospital wage indices will not take effect in the short term.
The report, which was required under the Patient Protection and Affordable Care Act, outlined the recent history and proposed reforms to the Medicare hospital wage index system and explained the concept of the Commuting Based Wage Index.
Currently, the federal government utilizes hospitals' cost reports to determine average hourly wage and the wage index, which is used to adjust payments within the Medicare inpatient prospective payment system. Hospitals can apply for seven reclassifications and exceptions for a higher wage index area and, consequently, higher Medicare payments. In addition, the hospital wage index establishes wage indices for hospital labor market areas instead of individual hospitals.
Critics of the current system argue the current parameters do not reflect the true costs of labor for any given hospital, especially for those located in the extremes of the labor market boundaries.
HHS proposed the CBWI, which "takes into account hospital hiring patterns in calculating the wage index by using commuting data to establish a labor market area and wage index value for each hospital," according to the report. The CBWI would use smaller labor market areas and only uses wage data from hospitals that actually employ workers in its respective area.
Overall, HHS had five major findings if the CBWI were implemented:
1. The CBWI would yield wage index values that more closely correlate to actual labor costs.
2. A more up-to-date reporting system for collecting commuting data from hospitals would need to be adopted if a CBWI were instituted in order to more accurately reflect the commuting patterns of hospital employees.
3. Concerns over a CBWI leading to hospitals altering hiring patterns or distorting labor markets do not appear to be worse than those under the current wage index system.
4. All current statutory provisions and exceptions to the Medicare wage index would have to be reviewed for relevance.
5. If a CBWI were adopted in a "budget-neutral manner," payments for some hospitals would inevitably increase, while payments for others would decrease.
Secretary Sebelius wrote that the implementation of a CBWI would most likely require statutory and regulatory changes, and it is expected that revised hospital wage indices will not take effect in the short term.
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