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Analysis

CMS Wage Index Hike Looks to Aid Rural Hospitals

By John Commins  
   August 02, 2019

Rural hospitals had complained that the current wage index system worsens pay gaps between hospitals in high-wage areas and low-wage areas.

The Trump administration on Friday made public its 2020 final rule that increases the wage index for some low-wage index hospitals.

"The Trump Administration is providing relief to rural communities and addressing payment policies that have disadvantaged rural hospitals, making it harder for them to stay open and provide care to the one in five Americans living in rural areas,"  CMS Administrator Seema Verma said in a media release.

"The changes we're finalizing in today's rule are long overdue and improve the way Medicare pays hospitals, which will help many rural hospitals maintain their healthcare labor force, to ensure that patients have access to high-quality, affordable healthcare," she said.

Rural hospitals executives have long complained that the current wage index worsens pay gaps between hospitals in high-wage areas and low-wage areas, which tend to be rural.

Hospitals in areas with wages below the national average get a lower Medicare payment rate than hospitals in areas with above-average wages.

For example, CMS said a hospital in a low-wage rural community could receive a Medicare payment of about $4,000 for treating a pneumonia patient, while a hospital in a high-wage area could get a Medicare payment of nearly $6,000 for the same case because of wage index differences.

According to a CMS factsheet, the final rule will increase the wage index for hospitals with a wage index value below the 25th percentile.

"These hospitals' wage indexes will be increased by half the difference between the otherwise applicable wage index value for that hospital and the 25th percentile wage index value across all hospitals," CMS said.

This policy will begin at the start of Fiscal 2020 and will be effective for at least four years. In that span, CMS said, it is hoped that the additional funding could be used to increase employee compensation

The wage index increase is revenue neutral for Medicare. CMS said it is using a budget neutrality adjustment to the standardized amount that is applied across all Inpatient Prospective Payment System hospitals, rather than a decrease to the wage index for hospitals above the 75th percentile, as was initially proposed.

The American Hospital Association said the wage index adjustment benefits rural and low-volume hospitals at the expense of urban hospitals.

"We are concerned that CMS did not include our recommendation that the proposed area wage index policy designed to help certain low-wage rural hospitals be non-budget neutral," AHA Executive Vice President Tom Nickels said in a statement.

"While we support improving the wage index values for many struggling rural hospitals, this should not be done by penalizing all hospitals, especially when Medicare already pays far less than the cost of providing care. That's why we strongly urged the agency to use its existing statutory authority to increase the wage index in a non-budget neutral manner," he said.

CMS is also finalizing changes to the wage index "rural floor" that will remove urban to rural hospital reclassifications from the calculation of the rural floor wage index value beginning in FY 2020. 

CMS said the rule change was needed because hospitals have used urban to rural hospital reclassifications to skew the rural floor wage index value.

CMS is finalizing a transition of a 5% cap for FY 2020 on any decrease in a hospital's wage index from its final wage index for FY 2019 to help mitigate any significant decreases in the wage index values of hospitals for FY 2020.

In other words, a hospital's final wage index for FY 2020 will not be less than 95% of its final wage index for FY 2019, CMS said.

In other areas:

  • The final rule increases Medicare inpatient prospective payment system rates by a net 3.1% in 2020 for hospitals that comply with meaningful use standards for electronic medical records.
     
  • CMS will make available $8.35 billion in disproportionate share payments, an increase of $78 million over last year, and will use 2015 cost data to determine how the DSH payments are doled out in 2020.
     
  • CMS also finalized its proposal to increase the marginal rate of the new technology add-on payments, including for Chimeric Antigen Receptor (CAR)-T therapies, from 50% to 65%.
     
  • The final rule increases Medicare new technology add-on payments (NTAP), including Chimeric Antigen Receptor (CAR)-T therapies from 50% to 65% for cases with high costs involving eligible new technologies.
     
  • CMS is updating payment policies for medical devices that meet the Food & Drug Administration's Breakthrough Devices designation, which would no longer be required to demonstrate evidence of "substantial clinical improvement" to qualify for new technology add-on payments.
     
  • CMS has created an alternative NTAP pathway, which would no longer require new antimicrobial drugs to meet the "substantial clinical improvement" criteria and would also increase the NTAP from 50% to 75%. 

“The changes we're finalizing in today's rule are long overdue and improve the way Medicare pays hospitals, which will help many rural hospitals maintain their healthcare labor force, to ensure that patients have access to high-quality, affordable healthcare.”

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.


KEY TAKEAWAYS

The final rule will increase the wage index for hospitals with a wage index value below the 25th percentile.

CMS is also finalizing changes to the wage index 'rural floor' that will remove urban to rural hospital reclassifications from the calculation of the rural floor wage index value beginning in FY 2020.

To pay for the wage index hike, CMS is using a budget neutrality adjustment to the standardized amount that is applied across all IPPS hospitals.

The AHA says the wage index hike for rural hospitals comes at the expense of urban hospitals, and calls on CMS to 'increase the wage index in a non-budget neutral manner.'


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