MICHIGAN HEALTH & HOSPITAL
ASSOCIATION
October 9, 2013
Medicare Wage Index Project
FFY 2015 Data
FFY 2011 and Subsequent Years Data
Presenter:
Dale Baker
Baker Healthcare Consulting, Inc.
Dial in Number:1-888-809-4012
Access Code: 7038619
Please mute your phone by pressing *6 once you have entered the conference call.
TOPICS
We will follow the book:
The Basics – Wage Index
2014 Wage Indexes
Hot Topics
Special Considerations
Work Plan
The Future of the Wage Index
2
FIRST THE BACKGROUND MATERIALS






Page 1 Wage Index Calculation Flow shows the use of the data
CMS 2552-10 replacing 2552-96 and instructions
Also, the Wage Index Instruction Form Occupational Mix Survey
Instructions and background
August 19, 2013 Federal Register provisions includes
instructions.
2011 Federal Register provisions for pension cost finding (not
wage index)
Finally Data on the “Access Clause” for Contracting
3
THE BASICS
4
COST REPORTING DATA USED FOR WAGE
INDEXES BY YEAR

Data for FFY 2011 (cost reporting periods
beginning October 1, 2010 through September 29,
2011) will be used for FFY 2015 wage index
computation.

For short periods beginning October 1, 2010
through September 29, 2011, CMS uses the
longest period, or if two periods are the same
length, the most recent period. CMS annualizes
short period data.
5
COST REPORTING DATA USED FOR WAGE
INDEXES

Wage data includes:







Salaries and hours from IPPS hospitals (including paid lunch hours
and hours for military leave and jury duty)
Home Office Salaries and hours
Certain contract labor: direct patient care, some top management,
pharmacy, lab, physician nonteaching Part A costs, dietary,
housekeeping & administrative, and general (includes legal, audit
and consulting).
Wage-related costs
Certain outpatient services included in OPPS (e.g., ED, providerbased clinics)
Physician Part A (non-teaching)
Wage data excludes: Non-IPPS services, GME, CRNAs, RHC
& FQHCs, CAHs, physician Part B and Physician Part A
teaching.
6
TABLE FOR HOSPITALS WITH VARIOUS
FISCAL YEAR ENDS
Hospital FYE
September 30, 2011
December 31, 2011
April 30, 2012
June 30, 2012
August 31, 2012
September 30, 2012
December 31, 2012
April 30, 2013
June 30, 2013
August 31, 2013
Inpatient Acute Care
Acute Outpatient
FFY 2015
FFY 2015
FFY 2015
FFY 2015
FFY 2015
FFY 2015
FFY 2016
FFY 2016
FFY 2016
FFY 2016
Calendar 2015
Calendar 2015
Calendar 2015
Calendar 2015
Calendar 2015
Calendar 2016
Calendar 2016
Calendar 2016
Calendar 2016
Calendar 2016
There are varying beginning dates for PPS programs applicable to rehab, long term care, rehabilitation
units, psychiatric, home health, hospice, SNF and end stage renal providers. For Medicare geographic
reclassification purposes, three years wage index data is used to satisfy the criteria for a wage index
reclassification for a three year reclassification. This means that the most recent three years wage index
data (four to seven years old) available at the filing date is used for reclassification purposes.
7
CALCULATION OF FFY 2013 WAGE INDEX
EXAMPLE
METROPOLIS METROPOLITAN STATISTICAL AREA (MSA)
Hospital
FYE
Wages & Wage
Related Costs
CMS
Inflation
Factor
$ 60,000,000
1.01768
$ 61,060,800
1,355,915
$45.03
Inflated
Wages
Hours
Average
Hourly
Wage
City
9/30/11
Memorial
12/31/11
50,000,000
1.01235
50,617,500
1,406,912
35.98
University
6/30/11
190,000,000
1.00288
190,547,200
3,956,403
48.16
Suburban
3/31/11
90,000,000
1.00736
90,664,200
2,602,093
34.84
$392,889,700
÷ 9,321,323
$
42.1496
÷
38.3698
1.0985
x
.99015
1.0887
9,321,323
Totals
$390,000,000
MSA Average Hourly Wage
National AHW
Computed WI
Budget Neutrality Adjustment
2013 Final Wage Index
A separate wage index is computed for each Metropolitan Statistical Area (or each Metropolitan Division) and
each statewide rural area. The above example does not demonstrate the effect of the Medicare occupational
mix adjustment which is used to adjust the wages as included in the above example. Also, a rural floor
applicable to certain urban areas budget neutrality adjustment (2013 is .99134) to reduce the wage index for
these amounts.
8
USES OF THE MEDICARE WAGE INDEX
Wage Index <1.0000
62%
Labor
Related
$3,329.67
Example WI
x
.9831
38%
100%
Non
Labor
Total
$2,040.71 $5,370.28
Wage Index >1.0000
69.6%*
Labor
Related
$3,737.71
30.4%
100%
Non
Labor
Total
$1,632.57 $5,370.28
x 1.0887
Base DRG
Payment
Wage
Non-Wage
$3,273.30
$2,040.71
$4,011.15
$1,632.57
Total
$5,314.01
$5,643.72
Times to DRG weighing factor
9
USES OF THE MEDICARE WAGE INDEX
OTHER
The wage index is also used for SNF, Home Health, Hospice, Ambulatory
Surgical Centers, and Rehabilitation, Psychiatric and Long Term Care
Hospitals (or units) and End Stage Renal Disease providers.
In Summary - The wage index is a primary determinant of Medicare
payments.
Wage Index Examples:
Highest: Santa Cruz, CA
Average
Lowest: Rural Alabama
Including Occupational Mix Adj.
Wage Index
FFY 2014
1.7276
1.0000
.7094
FFY 2012
1.6996
1.0000
.7277
10
IMPACT OF 1% INCREASE OF A
WAGE INDEX
Hospital with 5,000 Medicare discharges:
Perhaps: $397,000 - $431,000
Plus DSH & IME
11
NATIONAL AVERAGE HOURLY WAGE
FFY 2007-2013
FFY
2014
2013
2012
2011
2010
2009
2008
2007
Average Wage
$38.37
37.46
36.25
34.97
33.53
32.24
30.91
29.65
% of Prior Year
102.43%
103.34%
103.66%
104.29%
104.00%
104.31%
104.26%
105.89%
12
WAGE INDEX & STATISTICAL TABLES
CMS has discontinued publishing wage
index and statistical tables in the Federal
Register.
 Go to the CMS website to obtain these
tables.

13
LOCAL WAGE INDEXES
See Workbook
14
2015 WAGE INDEX TIMETABLE

September 13, 2013 CMS releases public use files

November 21, 2013
Receipt deadline for hospital to submit wage
data and hour revisions to intermediary (or Medicare
Administrative Contractor – MAC). Revisions will be
accepted applicable to wage index data and revisions
of MOMA data hospitals must include “adequate
supporting documentation".

February 10, 2014
FI’s complete desk reviews and transmits
data to CMS. FI’s notify State hospital association of
non-responsive hospitals.

February 20, 2014
Public Use File released.

March 3, 2014
Hospital deadline to request data
correction due to mishandling of data by
FI or CMS.
15
2015 WAGE INDEX TIMETABLE (CONT.)

April/May, 2013 Publication of Proposed IPPS Rule.

April 16, 2014
Receipt deadline to appeal Fiscal Intermediary
determination to CMS with a copy to the
Fiscal Intermediary.

May 2, 2014
Public Use File is published with almost final data.

June 2, 2014
Hospital deadline to request changes due to
Fiscal Intermediary or CMS handling errors.

August 1, 2014
Final IPPS Rule issued.

October 1, 2014 Effective date of Medicare wage indexes.
16
CRITICAL PATH FOR APPEAL RIGHTS
FFY 2015
1.
2.
3.
4.
5.
6.
Receipt by MACs of adjustments by November 21, 2013 deadline with
"supporting documentation”.
Obtain written denial from MAC by March 3, 2014.
Receipt of request for CMS review (copy to MAC) by April 6, 2014
deadline send adequate support.
CMS responds generally in June/July 2013 timeframe.
Appeal request must be filed within 180 days of publication of Final
Wage Index – expected publication date in August of 2014.
Repeat process for subsequent years.
If in doubt – protect appeal rights.
Draft letter in workbook.
Note: Hospitals can also file appeal request within 180 days of receipt of
the Notice of Program Reimbursement.
17
MATERIALITY

An adjustment returns approximately 40% of its
value to hospitals in each MSA.

Hours adjustments are powerful and frequent.

Pretend you are the only hospital in your MSA
(statewide rural area) in considering materiality.
18
HOT TOPICS
OCCUPATIONAL MIX SURVEY


New Survey Calendar 2010:
Instructions are very similar to 2007-2008 Survey.
Will be used for FFY 2013-2015 wage index.
Data is simple looking data:
Paid
Salaries




Paid
Hours
AHW
Nursing occupations
RNs
LPNs & Surgical Technologists
Nursing Aides, Orderlies & Attendants
Medical Assistants
Total Nursing
All other occupations
Total
TO PROPERLY COMPLETE THIS SURVEY SEEK INPUT FROM NURSING ADMINISTRATION AND--AS APPLICABLE- OTHER OPERATING PERSONNEL.
CHANGES CAN BE SUBMITTED TO THE MAC BY THE DECEMBER 2012 SCRUBBING DEADLINE.
19
MOMA BASICS
Best to worst line items
1.
2.
3.
4.
Nursing aides, orderlies & assistants
Medical assistants
LPNs and surgical technologies
RNs
“All other” is a neutral but generally desirable
category.
20
NATIONAL % OF HOURS PER SURVEY
2010
2007-08
RNs
LPNS
Nursing Aides, Orderlies & Attendants
Medical Assistants
72.14%
7.45
17.45
2.96
78.68%
11.25
10.07
-0-
Nursing subcategory
100%
100%
Subtotal Nursing
39.59
36.86
All Other
60.41
63.14
Total
100%
100%
Note that 2010 survey data as of September 2012.
Hours is the “driver” for OMA - CMS uses National AHWs – virtually no
impact for individual hospitals.
21
22
23
24
25
WHAT IF?
Use the Baker Healthcare Consulting estimator
to play “what if games” with your data.
See the Workbook.
BHC website is Baker-healthcare.com
26
OTHER CHANGES
CMS manualizes policy to exclude hours, wage related
costs and salaries of capitalized salaries.
Un-accrued PTO hours at year end are to be recognized
on the "cash basis" – when paid in the subsequent
year.
Some hospitals had excluded these hours in subsequent
year.
CMS claims better matching (paid vacation hours of
prior year are consistent year to year).
Fully accrued hours should be fine and includable.
But are very rare in hospital systems.
27
HOT TOPICS
LEGAL AUDIT & CONSULTING SERVICES



May 2008 CMS releases Revision 18 to PRM
formalizing policy.
July 2008 – via private e-mail, CMS clarifies that
financial audits are includable.
How much is includable?



MACs accepted billing hours and amounts (generally) right
off invoices.
Obtaining hours from venders is very important.
Equipment, travel, overhead is generally excluded, but for
consulting, audit and legal fees right off invoices have been
accepted.
28
HOT TOPICS
LEGAL AUDIT & CONSULTING SERVICES

What is included?
“Any contract service included on Worksheet
A, line 6, column 2. Contract information
service, legal services, tax preparation
services, and cost report preparation
services are examples of contract labor
costs includable on line 22.01”.
29
HOT TOPICS
LEGAL AUDIT & CONSULTING SERVICES

CMS also clarified that on line 9 Personnel Costs for
Contract Management and Administrative Services
include such positions as “Director of Pediatrics,
Laboratory Services, Administrator, Blood Bank
Manager, Administrative Assistant in the Department
of Cardiology, SICU Ward Clerk, and Medical Secretary
in the Obstetrics Department.”

CMS has broadly defined A & G contract labor what is
includable.
30
WHAT TO DO
LEGAL AUDIT & CONSULTING SERVICES

Scour "purchased services" for high hourly amounts
that are includable.

How about medical record coding engagements?
 Charge
Master Review
 Employment agency fees
 Executive recruiter fees
 A/R consulting
 Outsourced department management (lines 9.03
and/or 22.01

Get creative!!
31
HOT TOPICS
LEGAL AUDIT & CONSULTING SERVICES
Now – the dark side:
Revision 20 to the PRM (August 2009) in the
instructions to line 22.01 (contract A&G).
"Do not include on line 22.01 any costs for contract
labor home office personnel (these costs are not
currently included in the wage index".
32
HOT TOPICS
LEGAL AUDIT & CONSULTING SERVICES
(CONT.)
CMS subsequently allowed these costs under the theory
that the instructions have been interpreted to prevent
a “double dip” inclusion on both the home office and
contract service lines.
Aggressive position has prevailed
Hours and Rates right off the invoices.
Precedent – Agency Nurses
Not in accordance with CMS' instructions (for Agency
Nurses or for other)
33
MAC DISTRIBUTED WI DESK REVIEW
QUESTIONNAIRE




States termination PTO hours need not be included in
line 1.
Membership in fitness clubs paid by hospital is not
self insurance (not a WRC)
Asks hospitals to provide documentation that selffunded insurance costs do not exceed costs of
commercial policy.
Note: Sub regulatory guidance not necessarily
uniform across country.
34
WAGE INDEX APPEALS
I. "Bogus" Hours Issues:



Self-funded disability “hours”:
Favorable decision at:
District Court level in Rochester, NY
CMS settled case Court decision vacated as a
condition of settlement.
New favorable unanimous PRRB decision received 10/11/11
Baylor Plan hours:
Description
Status of issue in Appelate Court in Cincinnati
New favorable unanimous PRRB decision received 10/11/11
Lunch hour
Description
Chicago Court of Appeals ruled against hospitals
II. “Shared Culpability” Issues:
 Michael Reese case settled $7 million at Appellate Court in Chicago.
 Santa Cruz, CA MSA now before the PRRB a on similar issue.
35
WAGE INDEX APPEALS
VII. Pension & Post Retirement Benefits







Historically since 1994 GAAP
OIG audits February 2005
OIG memo to CMS May 2005
August 11, 2005 Federal Register – CMS requires “funding” to
include GAAP costs.
Retroactive to periods beginning as early as October 1, 2002
Selective implementations by FI
Does solution make sense?
ERISA not GAAP includability?
 California Case appealed June 14, 2011
 Hall Render/BHC cases heard at PRRB on April 10, 2012
36
APPEAL ISSUES PENSION
All 5 Campuses of University of California
were adjusted.
Reduces payment by approximately $90 million for FFY
2007 for California.
San Diego, Los Angeles (and reclassified into LA) Orange
(reclassified into Orange), San Francisco and
Sacramento wage indexes
Hooper Lundy & Bookman is coordinating
Dale Baker testified for two hours – inconsistency
throughout the U.S.
BHC working with hospitals perhaps $300 million in
controversy (approximately 400 hospitals)
2007-2011 April 10, 2012.
PRRB denied – lacks jurisdiction on to DC District Court.
37
HOT TOPICS
RURAL FLOOR BNA APPEALS
Background:
Balanced Budget Act of 1997
Budget Neutral Rural Floor for Urban Wage
Indexes
CMS implemented in a “budget negative
manner”.
Approximately 2,200 hospitals appealed this
issue 2007-2011
 Favorable settlement April 15, 2012
Another 500 hospitals appealing now.

38
OTHER APPEAL ISSUES
2007 SSI ratios now include "Medicare Advantage Days".
Generally decrease SSI % and DSH payments.
Regulation CMS says include MA.
Statute says only patients "entitled to Part A benefits.
MA are "eligible" for Part A but not "entitled to".
Legal Question:
Does entitled to = "eligible for“
1498R Ruling being implemented by MACs
Also “Dual Eligible”, “Labor and Delivery Days”, and
“Observation Days”
39
2013 PENSION & POST RETIREMENT BENEFITS

REPORTING NEW RULES:
CMS implemented a three year funding methodology
in 2013 that seems reasonable.
We do not contemplate additional pension appeals for
2013 going forward.
40
This approach has largely ended needs for Pension Appeals for FFY 2013 and
forward.
41
2015 SPECIAL CONSIDERATIONS
Use of Diagnostic Review
Maximizing wage related costs
- Pension audit, legal and consulting
- Health insurance – TPA approach
- Self-funded health insurance
Allocation of fringes to highly paid physicians and
CRNAs
Work plan review
42
WORKBOOK
Focus on workbook
43
QUESTIONS
44
THE FUTURE OF THE
WAGE INDEX
45
TAX RELIEF & HEALTH CARE ACT OF 2006
Signed into law December 20, 2006
by
Lame Duck Congress
Section 106
Required MedPAC to issue a report by June 30, 2007 including
“alternatives the Commission recommends to the method to
compute the wage index.
Provides $2 million funding for the study
and
46
TAX RELIEF & HEALTH CARE ACT OF 2006
(TRISHA)
Requires the Secretary of HHS to issue for FFY 2009 one or more proposals
taking into account the MedPAC report in the IPPS proposed rule due to be
published in April 2008. CMS/HHS shall consider:
Problems defining labor markets.
 Modify/eliminate geographic reclassification.
 Possibly use BLS data.
 Minimizing variations between and within MSAs and statewide rural areas.
 Applying components to other care settings (home health, SNF, etc.)
 Minimize volatility while maintaining budget neutrality.
 Regional effects and effects on providers.
 Implementation phase in.
 Issues related to occupational mix and effect on quality of care and patient
safety.

47
MEDPAC PROPOSED BLS WAGE INDEX,
METHODOLOGY






Use Bureau of Labor Statistic data (May & November
each year)
Include hospital and non-hospital data:
1.2 million establishments on three year cycle.
By occupation (eliminate need for Occupational Mix
Adjustment (RNs, LPNs, physical therapist, etc))
By county within and outside MSAs
Determine wage index for each MSA (presumably
metropolitan division)
48
SMOOTHING WITHIN MSA
High cost county(ies) may be increased up to
105% of MSA average. (Smoothing)
 Lower cost counties (generally outlying
counties) can be reduced to 95%. (Smoothing)
 Maximum “cliff” at county boundary is 10%.
 Rural counties (outside Metropolitan Statistical
Areas) county by county determination.
 10% maximum cliff (smoothing)
 Eliminate geographic reclassification.

49
WHAT’S WRONG WITH THE MEDPAC
PROPOSAL?

Today’s wage index:
Mandatory system virtually all IPPS hospitals
participate.
Full Year historical hospital data “scrubbed” by
hospitals with 100% desk review by FIs (MACs).

MedPAC proposal:
Wage indexes subjectively modified by “smoothing”
Cliffs at county boundary could be 8%, 10% or 12%
affecting payment by billions of dollars
50
WHAT’S WRONG WITH THE MEDPAC
PROPOSAL?
Accuracy Issues

Today’s wage index:
Single data source (S-3) sorted based on Census/OMB designated MSAs
(statewide rural areas reconciled to cost reports). Wages, fringes and
hours are consistent.

MedPAC proposal:
Sample data (two payroll periods May and November)
Participation by employers is voluntary and confidential.
BLS may secretly impute data for non-responsive employers, CMS would
not know.

MedPAC notes that data is not as accurate as current data and that it
understates the highest wage indexes (San Francisco Bay Area and NYC, for
example).
51
WHAT’S WRONG WITH THE MEDPAC
PROPOSAL?
Accuracy Issues (continued)



BLS data is reduced to a simple average hourly wage (excluding fringes).
BLS distortion caused by mix of part time/full time employees (part time x
2,080)
What about areas of the county where 7.5 hour workday is standard rather
than 8.0?
Mixing Databases


Today’s wage index collects wages, fringes and hours from a single report,
S-3 of cost report.
Med PAC proposal – BLS data excludes fringe benefits. MedPAC “grafted”
hospital only fringe benefit data (which ranges up to 47% of salaries) in
computing county by county wage indexes.
52
WHAT’S WRONG WITH THE MEDPAC
PROPOSAL?
Transparency

Today’s wage index – detailed S-3 data published in Public Use
Files in October, February and May. Available earlier on cost
report publicly available data. A “final file” is published after
release of the Final IPPS rule. Data is very transparent.

MedPAC proposal – Voluntary confidential data no
transparency to CMS or the public

Imputed data is secret.
53
LACK OF COMPARABILITY

MedPAC proposal:
Includes CAHs with low wages (distortion of rural wage indexes
in counties with both IPPS and CAH hospitals).
BLS does not pick up salaried physician Part A services.
BLS does not pick up contract physician Part A services
(required by law in California and possibly Texas).
BLS pick up agency nursing and other contract services in the
county where the agency is located rather than the hospital
county.
Agency nurses amount paid to nurses, not amounts paid per
hour worked by the hospital.
54
ACUMEN, LLC
AWARDED A TASK ORDER
Where?
Burlingame California (SFO Airport)
Who?
Stanford University "Scholars"
Management Team:
Thomas MaCurdy – Professor of
Economics
Margaret (Peggy) O'Brien-Starn – Gardner
Center of Stanford
Jonathan Wilwerding – Research Fellow at
Stanford Institute for Economic Policy
Research
55
ACUMEN, LLC
Acumen's Final Findings – We need to study more.
Revision of Medicare Wage Index.
Final Report: Part II, March 16th, 2010
Acumen recommends further exploration of labor market
definitions using a wage area framework based on hospitalspecific characteristics, such as the commuting times from
hospitals to population centers, to construct a more accurate
hospital wage index….
 However, it would be naïve on our part to believe that all
hospitals would eagerly embrace a wage index that significantly
improves the accuracy of the wage index. … Certain hospitals,
especially rural hospitals, benefit more from the existing
reclassifications and exceptions than they would if their wage
index values were more accurate.
 Most importantly, Acumen did not endorse MedPAC/BLS wage
index proposal.

56
INDUSTRY SUPPORT FOR MEDPAC PROPOSAL
 Opposed
by AHA
 Opposed
by FAH
 Opposed
by most state and regional
associations.
57
AFFORDABLE CARE ACT
Public Law 111-148
Enacted March 23, 2010
By December 31, 2011, the Secretary of HHS shall
submit to Congress a plan to reform the Medicare
Hospital Wage Index System including the goals set forth
in the June 2007 MedPAC Report that:
 Use Bureau of Labor Statistics (BLS) data or other
data or methodologies.
This
was drafted in 2009, before Acumen released their final
report 3/16/20. BLS could be outdated.

Minimize wage index adjustments between and
within metropolitan statistical areas and statewide
rural areas.
58
AFFORDABLE CARE ACT
Minimize volatility, on a budget neutral basis.
 Consider implementation and redistribution
of payment issues.
 Address occupational mix and consider
patient quality and safety.
 Provide a transition.

59
PROVISIONS IN ACA




Renewal of Section 508 reclassifications for FFY 2010
Eliminates state by state rural floor budget neutrality
Reinstates historical thresholds for geographic
reclassification – rural and RRC 82% of target, urban
(non-RRC) 84%, countywide 85%, which could sunset
for FY 2014 or 2015.
Includes provisions to study certain post acute wage
indexes.
60
ACUMEN REPORT, APRIL 2011
MAJOR PROVISIONS





Replace Metropolitan Statistical Areas as “building
blocks” for wage index with zip codes or Census
Tracts.
Determine an Average Hourly Wage (AHW) for each
zip code.
Identify hospital employees by zip code multiply by %
of hospital employees in each zip code and “build” a
hospital specific wage index.
Use either old Census data or massive hospital
database to determine zip code.
Probably do away with geographic reclassification.
61
How It Works – Milwaukee Example
62
IMPLICATIONS





Punishes inner city hospitals (safety net hospitals)
that can not cost shift to other payors.
Punish large rural hospitals (referral centers) in many
areas “the backbone” of the rural health system.
Provide disincentive to hire workers in the inner city,
when unemployment and the need for jobs is greatest.
DOA per former CMS official
Institute of Medicine did not even acknowledge
Acumen Proposal in their June 1, 2011 report.
63
INSTITUTE OF MEDICINE (IOM)
Non-profit think tank (academics from all over
USA).
 Engaged by CMS in August 2010
 No direct linkage to Congress
 Paid by CMS
 Public meetings: September 2010, January
2011, June 1, 2011, July 17, 2012

64
JUNE 1, 2011 PRESS CONFERENCE &
RELEASE OF PRELIMINARY REPORT







Continue using MSAs as building blocks (perhaps
breakdown statewide rural)
Eliminate geographic reclassification
Use Bureau of Labor Statistics Data
Increase Transparency (between government
agencies)
Silent as to transparency with the public
Make border adjustments based on commuting
patterns between neighboring wage index areas.
No discussion of two way commuting patterns
65
WHAT’S NEXT?
All meetings have been completed
 IOM tentative recommendations are the final
IOM recommendations
 IOM Webinars scheduled for October 10th
and 17th, 2012
 One additional webinar to be scheduled on
telemedicine

66
67
2011 MA CONTROVERSY 2012 WI










Nantucket Cottage Hospital – 19 Beds
Formerly a Critical Access Hospital
Affiliated with a major health care system, returned to IPPS hospital
Establishes a rural floor in Mass for FY 2012 of 1.3452 compared to Boston
wage index of 1.2263 for FY 2011.
Every hospital in Mass gets rural floor based solely on Nantucket.
AHA and others express concern
Reduces wage indexes by .62% outside of Massachusetts.
Hospital Coalition, of approximately 20 hospital associations, asks President
to “fix” Massachusetts Rural Floor issue.
Hospital coalition estimates $367 million budget neutral shift to
Massachusetts from other states.
CMS has taken no action in FFY 2013 Final Rule
68
POSSIBLE FUTURE ACTIONS
In the July 18, 2011 Outpatient Proposed PPS Rule:





CMS expresses concern over manipulation of Rural Floor
CMS notes that urban hospitals can request rural status -- under current
policies the rural wage index (the floor) can increase.
Options to CMS:
 Do not apply Rural Floor to OPPS when it is set by small number of
hospitals and benefits the whole state
or
 State by state budget neutrality
or
 Something else
Also CMS contemplates only truly rural hospitals in computing the rural
wage index (floor).
CMS did not finalize these proposals.
69
URBAN HOSPITALS RECLASSIFYING TO
RURAL STATUS




Regulation 42 CFR 412.103:
Urban hospitals can become rural if they meet the requirements
to be either a Sole Community Hospital (SCH) or a Rural Referral
Center (RRC) if they were in a rural area.
At least 5,000 discharges (3,000 in certain osteopathic
hospitals)
Case Mix Index equal to a greater than CMS Regional Average
Non-Teaching Case Mix (published in F.R.).
At least 50% of medical staff is Board eligible or Board certified.
70
URBAN HOSPITALS RECLASSIFYING TO
RURAL STATUS

Present Policy:
If urban hospital AHW is higher than Rural
AHW it is added into the rural data before
computing a wage index.
71
SO BHC TESTED POSSIBLE IMPACTS AS
FOLLOWS:
Our data guy (Jack) selected two large urban
hospitals in several states that likely meet all
criteria for RRC status.
 He did not disclose which hospitals he
chose.
 He recomputed the FFY 2012 Rural Floor
wage index including the two large hospitals
in each state.

72
RESULTS FOR 2012
California
Arizona
Colorado
Florida
Nevada
New York
Published
Rural Floor
1.1950
.8770
.9789
.8342
1.0000
.8572
Impact on other wage indexes
Decrease of Massachusetts
Decrease in all WI if these reclassifications
were used
Recomputed
1.4674
1.1001
1.0323
1.0233
1.1697
1.0700
Impact
(Millions)
$1,323
117
18
550
21
264
$2,293
(3.87%)
( .62%)
(4.49%)
73
FFY 2013
Published Natural
Rural Floor
Rural Floor
Arizona
Nevada
Frontier/NV

1.0569
1.0256
.9164
.9798
1.0000
Both wage indexes are the result of a single
hospital reclassifying from urban to rural.
74
CONCLUSION
CMS
HAS NOT ACTED TO
AVOID THIS
TRAIN WRECK
75
IOM STILL USES
BUREAU OF LABOR STATISTICS DATA



Area wide data lumps physician office practice RNs with hospital RNs &
Advance Practice Nurses.
An RN is a RN is a RN!
Assumption we make is that hospital RNs are paid substantially more per
hour and have higher fringe benefits than “office practice” RNs.






24/7 nursing care
California Nurses Association (National Nurses United)
One primary goal of the ACA (and whatever form that future healthcare reform
takes) is to reduce costs.
To do so means changing the site of care to reduce costs whenever it is
appropriate.
If BLS data is statistically sound as the site of care changes, more lower paid
office practice RNs will be included in a computed wage index.
Perverse incentive – Penalize hospitals with a lower wage index for shifting
the site of care and RNs from hospital to office practice.
76
IOM PROPOSAL HAS ANTI-WESTERN STATE BIAS
Patient Days
National Avg.
% State
Per Thousand
Patient Days
Less Than
Population
Per Thousand
National
Alaska
483.8
613.5
21%
Arizona
483.3
613.5
23%
California
468.1
613.5
24%
Colorado
438.6
613.5
29%
Idaho
403.2
613.5
34%
Nevada
488.5
613.5
30%
New Mexico
408.8
613.5
32%
New Hampshire
471.8
613.5
34%
Oregon
359.8
613.5
41%
Utah
346.2
613.5
44%
Vermont
490.5
613.5
20%
Washington
391.2
613.5
36%
Per 2012 Edition AHA Hospital Statistics
If BLS data is statistically accurate a BLS wage index would be substantially biased against the
Western states, that incur fewest patient days per thousand population.
Based on the 2012 Occupational Mix Adjustments 37% of all hospital salaries (nationally) are for
services of RNs.
77
WHAT’S NEXT?

AHA Medicare Area Wage Index Task Force:
 19
members
 4 health system CEOs
 2 hospital CEOs
 10 hospital association CEOs
Final recommendations due in October
 AHA – Regional Policy Boards will act on Task
Force Recommendations late 2012.
 Per CMS, final recommendations in early 2013.

78
2012 LAME DUCK SESSION
AHA annual meeting, May 2012:
 Trent Lott, former Republican Senate Majority
Leader predicted:
 If Obama is re-elected and if Senate stays
Democratic a wild lame duck session,
including tax, health care, and other issues
that Congress has been unable to agree upon
all legislated in December 2012
 2% Sequestration possibly repealed??

79
A COMPREHENSIVE MEDICARE WI REFORM
(CMWI) PROPOSAL COMPILED BY BHC

GOALS:
 Continue
the existing wage index/geographic
reclassification process but modify them to meet
Congressional and Industry needs.
 Focus on acute care hospitals.
 Also modify post acute care PPS
80
A PROPOSED COMPREHENSIVE MEDICARE WI
REFORM (CMWI)

GOALS FOR CMWI PROPOSAL:
 Develop
a CMWI proposal that includes:
Changes in Law
Changes in Regulations
Changes in Policy
Changes in the manner in which wage index
decision making is made.
 Goal – make the changes very cost effective
 Continue today’s transparent system
 Minimize redistributive effect.
81
A PROPOSED COMPREHENSIVE MEDICARE WI
REFORM (CMWI)
Consists of:
Legislative proposals
Administrative fixes
 Congress needs to pass legislation
 Members of Congress could sign a letter to
Secretary Sebelius requesting:
Administrative fixes (not requiring legislation)

82
WHAT DOES THIS COMPREHENSIVE PROPOSAL DO?






Reduces volatility by using a two year “rolling” wage index
(50/50).
Clears out the Halls of Congress – puts in a “stop loss” for
wage index decreases of over 1% of total Medicare payment
(1.5% of wage index).
Modernizes payment for Post Acute Care improving
comparability to local acute care wage indexes actually paid.
Provides a new money fix for low wage index areas of the
country while maintaining current incentives to “scrub data”.
Recompute outmigration adjustment annually, it is wrong two
of every three years since it is only computed once every three
years.
Make regulatory “mini fixes’ to eliminate obvious inequities.
83
TWO YEAR WI PROPOSAL (1)
Use two years data to reduce volatility of
annual wage index changes. ½ year FFY 2011
½ year FFY 2012 for example Legislative.
 Budget neutral over two year period.
 Reduces volatility by 50%.
 Can be implemented immediately. Data would
be accumulated under the current system from
the S-3, Part II. Cost of implementation zero.
No new data required.
 Change cutoff dates from FFY to calendar year
data to improve the timeliness of data.

84
TWO YEAR ROLLING WAGE INDEX




This reduces volatility by 50%.
Results in identical payments to each wage index
area over a two year period (i.e. no redistributive
effect).
Calculations would be based on current year
configuration of wage index areas (urban and rural)
using ½ year data from prior year.
Reclassified wage indexes would be based on
current year reclassifications so as not to distort
wage indexes because of changes in
reclassification (or wage index areas from census
changes).
85
.015 ANNUAL STOP LOSS FLOOR (2)

Implement a hospital specific 1½% annual
stop loss floor, eliminating catastrophic
decreases in wage indexes.
86
.015 ANNUAL STOP LOSS FLOOR
Redistributive effect for FFY 2010 is $57
million (.0005 of IPPS payments).
 FFY 2009 was approximately $35 million.
 Conclusion:
The impact is very minor and redistributive
effect is de minims.

87
POST ACUTE PARITY (3)

Modernize post acute care geographic
payment parity by applying actual average
IPPS wage indexes in each geographic area
throughout the country.
88
POST ACUTE CARE PAYMENT EQUITY (PAPE)




CMS, using existing data computes the average wage
index actually paid within each CBSA or statewide
rural area. Based on most recent CMS data on
number of discharges, case mix index using the actual
wage indexes (reclassified, unreclassified or rural
floor) by each hospital in a geographic area.
There is some redistribution.
Could be one time budget neutral adjustment.
Needed for bundling of payment under health reform.
89
POST ACUTE CARE PROVIDERS
COMPUTED FOR FFY 2010 FROM CMS PUF
DATA
Examples of percent post acute WI lower than actual average WI used by acute
care hospitals.
Madera, CA
38.55%
El Centro, CA
30.46%
Farmington, NM
27.33%
Williamsport, PA
19.28%
Scranton-Wilkes Barre, PA
14.00%
Rural Connecticut
11.04%
Gary, IN
9.22%
Bowling Green, KY
8.50%
Peabody, MA
6.96%
Providence-New Bedford-Fall River
6.58%
Pittsfield, MA
6.21%
Rural IN
5.90%
Rural KY
5.20%
Elizabethtown, KY
5.06%
90
90
GEO ADJUSTMENT FACTOR FOR WAGE
INDEXES LESS THAN 1.000 (4)

Implement a new money methodology to
increase all wage indexes under 1.0000,
preserving incentives to "scrub" data
(legislative).
91
GEO ADJUSTMENT FACTOR FOR WAGE INDEXES
LESS THAN 1.000





MedPAC report criticized current wage index
system because of "circularity".
The rich get richer – they $eldom complain.
The poor get poorer – they always complain
$olution – Congress can create a new money fix for
hospitals with wage indexes lower than 1.0000.
Let the rich get richer.
92
GEO ADJUSTMENT FACTOR FOR WAGE INDEXES
LESS THAN 1.000
CMS implements using a GAF methodology
which would include the following.
 Lowest wage indexes increase the most. As
wage indexes get closer to 1.0000 the amount
of the increase decreases.
 This maintains all hospitals in the same rank
and order as current wages and preserves the
incentive to "scrub" wage index data. This is
essential!

93
GEO ADJUSTMENT FACTOR FOR WAGE
INDEXES LESS THAN 1.000





Alternatives such as a “floor” (of 1.0000 for example)
changes wage index incentives and can result in the
opposite from what is intended.
Frontier states (MT, NV, WY, ND & SD) given wage
indexes of minimum of 1.0000 in the ACA.
Approx $500 million annually would raise all low
indexes appropriately (Congress’s call).
Phase in?
Modification possible for “low cost counties” and
other Congressionally mandated adjustments.
94
OUTMIGRATION ADJUSTMENT (5)

Recompute the outmigration adjustment
annually rather than every third year
(legislative).
95
OUR CMWI PROPOSALS
Originally we proposed to eliminate
occupational mix but we dropped this
provision as too re-distributional.
 Moves monies from East Coast and Midwest
to California (with mandated minimum
staffing ratios).
 Even our California clients realize the level of
opposition to eliminating the OMA.

96
ADMINISTRATIVE FIXES

Letter to Secretary Sebelius signed by
Members of Congress requesting:
1.
2.
3.
Allow hospitals to file for repetitive
reclassification annually rather than once
every three years.
Allow two campus hospitals in different
counties to each participate in countywide
reclassification to different targets.
All hospitals in an MSA should have the same
wage index (statewide rural floor distorts this
basic principle in MSAs that are low wage
areas in more than one state).
97
ADMINISTRATIVE FIXES
4. Allow a hospital to reclassify to a “higher wage”
MSA based on the most recent single years data
rather than only based on three year data.
5. Include pension costs in wage index based on
GAAP – not ERISA funded amounts.
6. CMS should give six years prospective notice in
changes in 82%, 84%, 85%, 106% & 108%
(Same as age of data used in reclassification
criteria).
7. Reinstitute an industry Medicare Technical
Advisory Group(M-TAC) for wage index issues.
98
ADMINISTRATIVE FIXES
8. Longstanding urban RRCs should have the same proximity
requirements as rural RRCs.
9. Measure proximity to nearest MSA county line with an IPPS
hospital in it (affects one hospital in Bemiji, Minnesota).
10. New provider in a county should receive countywide
reclassification when opened – currently there is up to a
three year wait.
11. Take steps to improve consistency between the MACs and
FIs in implementing wage index adjustments.
12. Eliminate bizarre interpretations that urban RRCs must
obtain rural status every third year to reclass to a wage
index area over 15 miles away
99
QUESTIONS?
100