FFY 2024 IPPS Final Rule: Wage Index
Rural Floor Wage Index Calculation
In the FFY 2023 Final Rule, CMS finalized a policy to include urban-to-rural reclassified hospitals (under 42 CFR §412.103) that otherwise did NOT have an effective reclassification with the Medicare Geographic Classification Review Board (MGCRB) in a state’s rural floor wage index. CMS’s FFY 2023 policy resulted from public comments and a recent court case (Citrus HMA, LLC, d/b/a Seven Rivers Regional Medical Center v. Becerra) where the court found that CMS did not have the authority to establish a rural floor lower than the rural wage index for a state (which CMS had changed in the FFY 2020 Final Rule).
In FFY 2024, CMS continues its policy including rural re-designated hospitals in a state’s rural floor wage index. However, because of the recent court cases and case law, CMS finalized FFY 2024 policy to include all urban-to-rural reclassified hospitals regardless of their MGCRB reclassification status and exclude “dual reclass” hospitals (hospitals with simultaneous rural and MGCRB reclassification status) implicated by the “hold harmless” provision applicable to rural areas. CMS funds this policy by applying a rural floor budget neutrality factor of 0.978183 to the occupational mix-adjusted wages used to calculate the wage index in FFY 2024.
The following CMS chart summarizes the “hold harmless” policy using the highest of each respective calculation to determine a state’s rural floor wage index. The major difference between the calculations used for FFY 2023 and FFY 2024 is the inclusion of urban-to-rural hospitals in all calculations with geographically rural hospitals.
Table 4: FFY 2024 Rural Floor Wage Index Hold Harmless Calculation
Continuation of Prior Year Wage Index Policy Changes
In FFY 2020, CMS finalized its policy to reduce wage index high-to-low disparities by increasing the values for low wage index hospitals below the 25th percentile. In FFY 2020, CMS anticipated it would continue this policy for at least four years, acknowledging that providers in these lower-quartile states would improve employee compensation within four years due to the higher wage index. However, despite the four years as well as recent litigation (Bridgeport Hospital, et al., v. Becerra) where a district court ruled against CMS (CMS has appealed the decision), CMS is again finalizing this policy in FFY 2024. CMS acknowledges that it only has one year of relevant data (from FFY 2020) that it could use to evaluate the impact of this policy on wages, and thereby, CMS will continue this policy until it is able to obtain sufficient data to evaluate the low wage index policy. Consistent with the finalized policy in previous years, in FFY 2024 CMS will “fund” this policy by applying a uniform budget neutrality adjustment of 0.997402 to the standardized payment rates.
In FFY 2022, as required by Section 9831 of the American Rescue Plan of 2021 enacted on March 11, 2021, CMS permanently reinstated the imputed rural floor wage index calculation for hospitals located in all-urban States, which refers to States without designated rural areas. The statute specifies that the adjustment pertaining to the imputed rural floor policy shall not be applied in a budget neutral manner, which means that any increase to the wage index for these all-urban States will not be offset by a decrease to the standardized amount or applied to wage indexes. In FFY 2024, CMS continues to apply the imputed rural floor to the all-urban States and further, provides the calculation using the two available methodologies that it used beginning in FFY 2013 prior to the previous imputed rural floor policy expiration in FFY 2018.
Permanent Cap Policy for Wage Index
As a result of various policy changes to the wage index starting in FFY 2020 and continuing into FFY 2024, CMS has implemented a “transition” policy which includes a cap of 5% on the decrease of any hospital’s wage index from the prior year. For instance, in FFY 2023, a hospital could not receive a final wage index that was less than 5% of what it received in FFY 2022. As a result of comments received during the FFY 2022 rulemaking, CMS places a permanent cap “to smooth year-to-year decreases in hospitals’ wage indexes” regardless of circumstances causing a hospital’s decline for FFY 2023 and subsequent years. In FFY 2024, CMS again implements the wage index cap policy in a budget-neutral manner to be applied to the standardized amount each fiscal year, which is consistent with similar past transition policies involving a cap on wage index decreases. The FFY 2024 budget neutrality adjustment due to wage index cap policy is 0.999645 and is applied to the standardized payment rates.
For more information, please contact Ryan Sader at ryan.sader@toyonassociates.com.