CMS could improve its area wage index adjustment to more specifically target rural hospitals and providers operating at low or negative margins, according to the HHS' Office of Inspector General.
CMS uses the area wage index to adjust Medicare payment rates to better reflect wages offered in local labor markets. The index is meant to boost reimbursement to healthcare providers that pay the lowest employee wages, with the idea that the adjustment may help them raise pay.
CMS calculates the wage index annually based on wage data submitted by hospitals in their Medicare cost reports. Those wage data are about four years old when used by CMS to calculate wage indexes.
In August 2019, CMS issued final rule changes to its inpatient prospective payment system that included new adjustments to how it calculates the hospital wage index. The changes increase the wage index for hospitals below the 25th percentile to close the wage disparity gap between low-wage and high-wage providers.
However, the OIG found in the audit released Dec. 30 that large disparities exist in the average hourly wages of individual providers located within area wage indexes, which means they may not be as accurate for all providers in the region.
The OIG suggested that CMS could consider focusing the bottom quartile wage index adjustment more accurately toward hospitals that are least able to raise wages without the adjustment.
The OIG conducted an audit to determine and ensure the wage index adjustment is accurate and adequate to compensate hospitals. The OIG said that if "hospitals are undercompensated because of inaccurate wage indexes, that puts them under financial stress, which could lead to a variety of adverse outcomes, up to and including closure."