Wage Index Changes
|Based on the CMS proposed changes for FFY2020, the occupational-mix adjusted national average hourly wage is estimated to be $43.99. |
CMS remains concerned that the current wage index system exacerbates disparities between high and low wage index hospitals. In addition, CMS also wants to address concerns that the rural floor calculation has been manipulated by a limited number of states to achieve higher wage index factors at the expense of hospitals in other states. As a result, CMS has proposed several significant changes to the wage index calculation.
CMS has proposed to reduce disparities by increasing the values for low wage index hospitals below the 25th percentile (or a WIF of 0.8482) and decreasing the values for high wage index hospitals above the 75th percentile (or a WIF of 1.0351). The proposed increase for the low wage index hospitals would be equal to half the difference between the original final wage index value for the hospital and the final 25th percentile value (e.g., 0.7573 = 0.6663 + (0.8482 – 0.6663)/2). The proposed decrease for the high wage index hospitals would be equal to the full difference between the original final wage index value for the hospital and the final 75th percentile value, multiplied by the estimated budget neutrality factor for these adjustments, which CMS currently projects to be 4.3% (e.g., 1.8263 = (1.8619 – 1.0351) x 0.043). CMS would like this policy to be effective for a period of at least 4 years in an effort to allow employee compensation increases sufficient time to be reflected in the wage index calculation.
Note: The budget neutrality factor noted in the body of the rule mentions 3.4%. However, this appears to be a typo by CMS, as Table 2 (Proposed CMI and Wage Index by CCN) is calculated using 4.3%.
CMS has also proposed to change the rural floor calculation, including the removal of urban-to-rural reclassifications. Beginning in FFY2020, state rural floors would be calculated without including the wage data of urban hospitals that have reclassified as rural.
In order to mitigate the negative impacts to hospitals with significant decreases, CMS plans to place a cap of 5% on the decrease of any hospital’s wage index from FFY2019 to FFY2020, allowing the effect of these policy changes to be phased in over 2 years. However, no such cap to limit the decrease in a hospital’s wage index would be applied during the second year.
CMS Proposed Wage Index Alternatives
As instructed under Executive Orders 12866 (10/4/1993) and 13563 (1/21/2011), CMS is directed to assess all costs and benefits of available alternatives for significant regulatory actions that are likely to have an economic effect of $100M or more or that raise novel legal or policy issues that arise out of legal mandates or the President’s priorities, among other criteria. Consequently, CMS has proposed three alternative methods for adjusting the wage index. These alternatives are not described in the body of the Proposed Rule, but are mentioned in Section I.O.1. of the Appendix A and are calculated in the 13th data file posted to the Proposed Rule homepage on the CMS website.
The three alternatives to the Proposed Rule as posed by CMS are the following:
1. Applying a budget neutrality factor to the standardized amount, rather than focusing the adjustment on the wage index of high wage index hospitals (See III.N.3.d):
* Same as the Proposed Rule, but this alternative removes the reduction to the high wage index hospitals above the 75th percentile, as well as the 5% cap on any negative impacts.
* Budget neutrality factor would be higher, and therefore, the standard Federal rate would decrease for all hospitals, as this alternative would not be funded by reducing the wage index factor for the high wage index hospitals.
2. Mirroring the proposed approach of raising the wage index for low wage index hospitals in reducing the wage index values for high wage index hospitals:
* The proposed increase for the low wage index hospitals would be equal to half the difference between the otherwise applicable final wage index for these hospitals and the 25th percentile wage index value [e.g., (0.8482 – Hosp WIF)/2].
* The proposed decrease for the high wage index hospitals would be equal to half the difference between the otherwise applicable final wage index value for these hospitals and the 75th percentile wage index value [e.g., (Hosp WIF – 1.0351)/2].
* The 5% cap on negative impacts to the high wage index hospitals would be removed.A budget neutral adjustment factor would be made to the standardized amount.
3. Creating a single national rural wage index and elimination of the individual state rural floors.
Click here for a comparison of current and prior WIFs for each hospital, as well as the estimated WIFs for each of the alternative CMS proposals.
In recent years, CMS has hinted at addressing what it describes as “wage index disparities;” however, no specific changes were proposed until this year. The proposed changes are noteworthy and will be heavily commented on by hospital associations and the provider community in the Final Rule. Should the proposed changes be made final, it will have significant reimbursement benefit to states that fall below the 25th percentile in terms of its wage index value and conversely, significant reimbursement reduction to states that have wage index values above the 75th percentile, notably California, New York and New Jersey. Toyon has developed a model analyzing the proposed changes to the wage index using FFY2020 proposed data sources. We are happy to share our analysis specific to your hospital.
Other Proposed Changes Impacting Wage Index
The overhead rate calculation would now be equal to the following:
* (Lines 26 through 43 – Lines 28, 33, 35) / ((((Line 1 + Lines 28, 33, 35) – (Lines 2, 3, 4.01, 5, 6, 7, 7.01, 8, and 26 through 43)) – (Lines 9 and 10)) + (Lines 26 through 43 – Lines 28, 33, 35)).
* The change made by CMS was to eliminate the removal of the sum of overhead contract labor (Lines 28, 33, 35) from the Revised Total Hours calculation in the denominator
* So (Lines 9, 10, 28, 33, and 35) will now simply be (Lines 9 and 10).
The rounding of values for the wage index calculation would be changed as follows:
* “Raw data” from any individual line item or field would not be rounded.
* Summed or averaged wage amounts would be rounded to 2 decimals.
* Hours would be rounded to the nearest whole number.
* Ratios, percentages, or inflation factors would be rounded to 5 decimals.
* Actual unadjusted and adjusted wage indexes would continue to be rounded to 4 decimals.
A new methodology for calculating the wage index for urban areas without wage data would be calculated by dividing the total urban salaries plus wage-related costs in the state by the total urban hours in the state, all of which would then be divided by the national average hourly wage.
Applications to the MGCRB for FFY2021 reclassifications, as well as cancellations and terminations, are due by 9/3/2019. All applications and supporting documents must be submitted via the Office of Hearings Case and Document Management System (OH CDMS). Because this new system is available, CMS is eliminating the requirement to copy CMS on these MGCRB filings. More information can be found at https://www.cms.gov/regulations-and-guidance/review-boards/MGCRB/electronic-filing.html.
Likewise, applications to CMS for rural redesignations may also now be submitted electronically, by fax, or by other electronic means, as well as by mail.
Rural redesignation cancellation requirements specific to RRCs require that the hospital be paid as a rural hospital for at least one 12-month cost reporting period before the status can be cancelled. CMS believes that these requirements are no longer relevant, now that hospitals may have simultaneous MGCRB and Section 412.103 reclassifications. As a result, CMS is revising these provisions to make any cancellations effective for all hospitals at the beginning of the next Federal fiscal year following the cancellation request, if requested within 45 days of the date of public display of the Proposed Rule prior to the applicable Federal fiscal year end.
For additional information, please contact Ryan Sader at firstname.lastname@example.org.