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Michigan health & hospital association

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1 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: Access Code: Please mute your phone by pressing *6 once you have entered the conference call.

2 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

Page 1 Wage Index Calculation Flow shows the use of the data CMS replacing 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


5 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.

6 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, provider-based 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.

7 Table For Hospitals With Various Fiscal Year Ends

8 CALCULATION OF FFY 2013 WAGE INDEX EXAMPLE METROPOLIS METROPOLITAN STATISTICAL AREA (MSA) CMS Average Wages & Wage Inflation Inflated Hourly Hospital FYE Related Costs Factor Wages Hours Wage City 9/30/11 $ 60,000, $ 61,060,800 1,355,915 $45.03 Memorial 12/31/11 50,000, ,617,500 1,406, University 6/30/11 190,000, ,547,200 3,956, Suburban 3/31/11 90,000, ,664,200 2,602, Totals $390,000,000 $392,889,700 9,321,323 ÷ 9,321,323 MSA Average Hourly Wage $ National AHW ÷ Computed WI Budget Neutrality Adjustment x 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 ) to reduce the wage index for these amounts.

9 Uses of the Medicare Wage Index
Wage Index < Wage Index >1.0000 62% 38% 100% 69.6%* 30.4% 100% Labor Non Labor Non Related Labor Total Related Labor Total $3, $2, $5, $3, $1, $5,370.28 Example WI x x Base DRG Payment Wage $3, $4,011.15 Non-Wage $2, $1,632.57 Total $5, $5,643.72 Times to DRG weighing factor

10 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: Including Occupational Mix Adj. Wage Index FFY 2014 FFY 2012 Highest: Santa Cruz, CA Average Lowest: Rural Alabama

11 Impact of 1% Increase of a Wage Index
Hospital with 5,000 Medicare discharges: Perhaps: $397,000 - $431,000 Plus DSH & IME

12 National Average Hourly Wage FFY 2007-2013
FFY Average Wage % of Prior Year 2014 $ % % % % % % % %

CMS has discontinued publishing wage index and statistical tables in the Federal Register. Go to the CMS website to obtain these tables.

14 Local Wage Indexes See Workbook

15 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.

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.

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.

18 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.

New Survey Calendar 2010: Instructions are very similar to Survey. Will be used for FFY wage index. Data is simple looking data: Paid Paid Salaries 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.

20 Best to worst line items
MOMA BASICS Best to worst line items Nursing aides, orderlies & assistants Medical assistants LPNs and surgical technologies RNs “All other” is a neutral but generally desirable category.

RNs 72.14% 78.68% LPNS Nursing Aides, Orderlies & Attendants Medical Assistants Nursing subcategory 100% 100% Subtotal Nursing All Other Total 100% 100% Note that 2010 survey data as of September Hours is the “driver” for OMA - CMS uses National AHWs – virtually no impact for individual hospitals.





26 WHAT IF? Use the Baker Healthcare Consulting estimator to play “what if games” with your data. See the Workbook. BHC website is

27 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.

May 2008 CMS releases Revision 18 to PRM formalizing policy. July 2008 – via private , 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.

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”.

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.

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!!

Now – the dark side: Revision 20 to the PRM (August 2009) in the instructions to line (contract A&G). "Do not include on line any costs for contract labor home office personnel (these costs are not currently included in the wage index".

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)

34 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 self-funded insurance costs do not exceed costs of commercial policy. Note: Sub regulatory guidance not necessarily uniform across country.

35 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.

36 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

37 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) April 10, PRRB denied – lacks jurisdiction on to DC District Court.

Background: Balanced Budget Act of Budget Neutral Rural Floor for Urban Wage Indexes CMS implemented in a “budget negative manner”. Approximately 2,200 hospitals appealed this issue Favorable settlement April 15, Another 500 hospitals appealing now.

39 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”

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.

41 This approach has largely ended needs for Pension Appeals for FFY 2013 and

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

43 WORKBOOK Focus on workbook



46 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

47 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 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.

48 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)

49 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.

50 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

51 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).

52 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.

53 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.

54 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.

55 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

56 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 hospital-specific 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.

57 Industry Support for MedPAC Proposal
Opposed by AHA Opposed by FAH Opposed by most state and regional associations.

58 Affordable Care Act Public Law 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.

59 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.

60 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.

61 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.

62 How It Works – Milwaukee Example

63 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.

64 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

65 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

66 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


68 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 compared to Boston wage index of 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

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.

Regulation 42 CFR : 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.

Present Policy: If urban hospital AHW is higher than Rural AHW it is added into the rural data before computing a wage index.

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.

73 RESULTS FOR 2012 Published Impact Rural Floor Recomputed (Millions) California $1,323 Arizona Colorado Florida Nevada New York $2,293 Impact on other wage indexes (3.87%) Decrease of Massachusetts ( .62%) Decrease in all WI if these reclassifications were used (4.49%)

74 FFY 2013 Published Natural Rural Floor Rural Floor
Arizona Nevada Frontier/NV Both wage indexes are the result of a single hospital reclassifying from urban to rural.


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.

Patient Days National Avg. % State Per Thousand Patient Days Less Than Population Per Thousand National Alaska % Arizona % California % Colorado % Idaho % Nevada % New Mexico % New Hampshire % Oregon % Utah % Vermont % Washington % 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.

78 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.

79 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??

80 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

81 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.

82 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)

83 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.

84 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.

85 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).

86 .015 Annual Stop Loss Floor (2)
Implement a hospital specific 1½% annual stop loss floor, eliminating catastrophic decreases in wage indexes.

87 .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.

88 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.

89 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.

90 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 % Bowling Green, KY % Peabody, MA % Providence-New Bedford-Fall River % Pittsfield, MA % Rural IN % Rural KY % Elizabethtown, KY % 90

91 Geo Adjustment Factor for Wage Indexes Less Than 1.000 (4)
Implement a new money methodology to increase all wage indexes under , preserving incentives to "scrub" data (legislative).

92 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 Let the rich get richer.

93 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 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!

94 Geo Adjustment Factor for Wage Indexes Less Than 1.000
Alternatives such as a “floor” (of 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 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.

95 Outmigration Adjustment (5)
Recompute the outmigration adjustment annually rather than every third year (legislative).

96 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.

97 ADMINISTRATIVE FIXES Letter to Secretary Sebelius signed by Members of Congress requesting: 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).

98 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.

99 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. Take steps to improve consistency between the MACs and FIs in implementing wage index adjustments. Eliminate bizarre interpretations that urban RRCs must obtain rural status every third year to reclass to a wage index area over 15 miles away


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