Based on the CMS proposed rates for FFY2022, the occupational mix adjusted national average hourly wage is estimated to be $46.37, representing an increase of 2.52% from the prior year.
Continuation of Prior Year Wage Index Policy Changes
CMS proposed and finalized a policy in FFY2020 to reduce wage index high-to-low disparities by increasing the values for low wage index hospitals below the 25th percentile (or a WIF of 0.8418 in FFY2021). In FFY2020, CMS anticipated that 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 because of the higher wage index. Accordingly, CMS is proposing to continue this policy in FFY2022. Consistent with the finalized policy in FFY2020 and 2021, in FFY2022 CMS will “fund” this policy by applying a uniform budget neutrality adjustment. The proposed low wage index hospital policy budget neutrality factor is 0.998108 (compared to 0.997970 in FFY2021).
Also, in FFY2020, CMS proposed and finalized a change to the rural floor calculation by removing urban-to-rural reclassifications from the statewide rural floor. CMS is proposing to continue this policy in FFY2022 (as it did in FFY2021) so that state rural floors would be calculated without including the wage data of urban hospitals that have reclassified as rural.
Lastly, in FFY2021, CMS proposed and finalized changes to specific Core-Based Statistical Areas (CBSAs) based on updated census data as released by the Office of Management and Budget (OMB) in its OMB Bulletin No.18-04 dated September 14, 2018. In unprecedented fashion, CMS incorporated the revised OMB delineations to CBSAs impacted in FFY2021, which included new CBSAs, urban counties that became rural counties, rural counties that became urban counties, and existing CBSAs that were split apart. CMS is proposing in FFY2022 to continue to use the OMB delineations adopted beginning with FFY2015 and updated most recently in OMB Bulletin No. 18-04.
As a result of the policy changes noted above, in FFY2020 and FFY2021 CMS finalized a “transition” policy which included a cap of 5% on the decrease of any hospital’s wage index from the prior year. For instance, in FFY2021, a hospital could not receive a final wage index that was less than 5% of what it received in FFY2020. While this transition policy was set to expire in FFY2021 and as proposed, CMS did NOT include a transition policy in FFY2022, CMS acknowledged the ongoing Public Health Emergency (PHE) in the Proposed Rule and is seeking comment on whether it is appropriate to apply a transition policy to the FFY2022 wage index. If CMS were to apply a transition to the FFY2022 wage index for hospitals that are negatively impacted by any of the policy changes described above, CMS is also seeking comment if it is appropriate to apply a transition policy in a budget neutral manner as it did in FFY2020 and FFY2021. In FFY2021, the transition policy’s budget neutrality factor was 0.998851.
The continuation of the policy changes implemented by CMS over the course of the last two years of rulemaking is not surprising and was anticipated. However, the potential continuation of a transition policy is a bit surprising. The revised OMB delineations notably impacted urban hospitals in the Northeast, primarily New York-New Jersey, as a number of counties were redefined to new CBSA designations and “moved out” of New York City which historically has produced a higher wage index for such hospitals. While the impact to these hospitals was mitigated in FFY2021 due to the transition policy, beyond FFY2021 the impact was likely to be significant and the continuation of a transition policy would be a welcome relief to continue to mitigate this potential impact. However, as noted and discussed further below, a potential transition policy will not mitigate the impact for these hospitals in FFY2022 due to the proposed inclusion of an imputed rural floor for “all-urban” States, which as proposed, includes New Jersey, Delaware, Rhode Island, Washington D.C., and Connecticut.
Toyon applauds CMS’s efforts to recognize the PHE and its overall financial impact on the provider community. We encourage hospitals to comment on the proposed transition policy and its potential financial benefit, where applicable, noting that an applied budget neutrality factor of 0.998851 (from FFY2021) will reduce payments overall by approximately 0.10%.
Proposed Occupational Mix Adjustment using Calendar Year (CY) 2019 Survey Data
CMS provides for the collection of data every three years on the occupational mix of employees for each short-term, acute care hospital. In 2016, CMS collected survey data to compute an occupational mix adjustment for the FFY2019, FFY2020 and FFY2021 wage indices. For FFY2022, an updated measurement of occupational mix was required using data from CY2019. CMS is proposing to utilize this data using the same methodology as prior years to calculate an occupational mix adjustment factor. CMS provides analysis in the Proposed Rule pertaining to the impact of the occupational mix adjustment on provider types (e.g., urban vs. rural) which is consistent with previous years. The unadjusted national average hourly wage is $46.42 compared to the occupational mix adjusted national average hourly wage of $46.37.
Reincarnation of the Imputed Rural Floor in “All-Urban” States
In FFY2005, CMS adopted an imputed rural floor policy as a temporary three-year regulatory measure to address concerns from hospitals in all-urban States that argued they were disadvantaged by the absence of rural hospitals to set a wage index floor for those States. After extending the imputed rural floor policy eight times since FFY2005, the policy expired and was not renewed in FFY2018 and has not been included in FFYs 2019 through 2021.
However, as required by Section 9831 of the American Rescue Plan of 2021 enacted on March 11, 2021, CMS proposes to permanently reinstate the imputed rural floor wage index calculation for hospitals located in all-urban States, which refers to States without designated rural areas. In accordance with the American Rescue Plan of 2021, “For discharges occurring on or after October 1, 2021, the area wage index applicable under this subparagraph to any hospital in an all-urban State…may not be less than the minimum area wage index for the fiscal year for hospitals in that State.”
CMS is required by the statute to reinstate the previous imputed rural floor methodology, and this rate cannot be less than the imputed rural floor CMS calculated for such States in FFY2018. Unlike FFY2018 and prior, the new 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 indices. Toyon is collaborating with hospitals and associations in these all-urban States to calculate estimate benefit.
In the FFY2022 Proposed Rule, CMS does not account for application of the imputed rural floor impact as there was “not sufficient time available to incorporate the recently enacted statutory provision providing for the imputed floor adjustment in a non-budget neutral manner beginning in FFY2022 into the rate setting, calculation of the wage index and tables…” CMS plans to include the imputed rural floor adjustment into rate setting, calculation of the wage index and tables of the Final Rule.