CMS watchdog suggests targeted approach for hospital wage index increase


A CMS program meant to boost reimbursement in areas where healthcare providers pay the lowest employee wages may not be focused on the hospitals that most need the added funds, according to a new federal audit.

HHS’ Office of Inspector General on Wednesday suggested the hospital wage index shoud target rural hospitals and providers operating at low or negative margins. The report found rural hospitals had the highest concentration of low-wage providers, which accounted for 53% of all providers in the bottom the 25th percentile.

Twenty-four states accounted for 866 of hospitals in the lowest wage quartile, according to the report. Puerto Rico and five states — Alabama, Arkansas, Louisiana, Mississippi and West Virginia — were home to 358 of those hospitals. More than 90% of those states’ hospitals were in the lowest quartile of the hospital wage index.

Last August, CMS issued final rule changes to its acute-care hospital inpatient prospective payment system that included readjustments in the way the agency calculates its hospital wage index, which CMS uses to adjust Medicare payment rates to better reflect wages offered in local labor markets.

The rule change will increase the wage index among hospitals below the 25th percentile wage index value beginning in fiscal year 2020 for at least the next four years in an effort to narrow the wage disparity between low-wage and higher-wage providers.

“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 statement when the rule changes were announced.

States with hospitals in the bottom quartile for employee wages also had the lowest state minimum wage amounts, with 17 only meeting the federal minimum wage of $7.25 an hour. No state that had a hospital in the bottom quartile had a minimum wage above $8.75.

More than half of the hospitals in the bottom quartile were located in states that did not expand Medicaid for all adults earning up to 138% of the federal poverty level.

While states with hospitals at the bottom for employee wages shared many common characteristics, the report found a lot of variation in terms of their fiscal performance. Profit margins among hospitals with wage index values in the bottom quartile ranged from a low of negative 133% to a net positive of 47%.

The report found large disparities in the average hourly wages of individual providers located within area wage indexes. In Kentucky, the average hourly wage for acute-care hospitals in the bottom quartile spanned from $44 an hour to $25 an hour.

“CMS could consider studying why some hospitals in a particular area were able to pay higher wages than other hospitals in the same area, prior to the implementation of the bottom quartile wage index adjustment,” the report found.

The inspector general report recommended CMS monitor wage data over the new few years to determine whether wage increases are occurring as a result of the wage index adjustment but acknowledged the impact at in the first year may not be seen due to the financial impact of the COVID-19 pandemic.



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