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Wage Index Initiative in Northeast Ohio

The Center for Health Affairs' Medicare wage index initiative yields member hospitals millions of dollars year after year by maximizing Medicare reimbursement. Each year, Northeast Ohio hospitals rely on The Center for Health Affairs to coordinate the wage index project, which includes a thorough analysis of the many data sources the Centers for Medicare and Medicaid Services (CMS) uses to calculate this important piece of the reimbursement formula.

Maximizing reimbursement is likely near the top of the priority list for all hospitals in Northeast Ohio and The Center for Health Affairs' wage index project is a key tool in meeting that objective:

The wage index assigned to a region by CMS can have a significant impact on the level of reimbursement that region receives for Medicare patients, which is why it is so important for Northeast Ohio hospitals to regularly review the data used to derive this piece of the reimbursement formula and ensure all relevant information has been included.

What is Wage Index?

Wage index is one of the factors used by CMS to determine prospective payment to hospitals for the patient care they provide to Medicare recipients. It is intended to account for regional differences in the cost of wages in the Medicare reimbursement formula. The methodology to determine wage index compares an annual national hospital wage level with that of hospitals located within a defined geographical region known as a Core-Based Statistical Area (CBSA). Wage index in a given market is the ratio of the area’s average hourly wage to the national average hourly wage. 

CMS gathers the information it needs to calculate wage index from Medicare Cost Reports, the Occupational Mix Survey, hospital payroll records, contracts and other wage-related information sources. Once this information is gathered and analyzed for all CBSAs, CMS assigns a wage index value to each CBSA:

The closer this ratio is to 1, the closer the region’s wages compare to the national average. The higher the ratio is, the greater the reimbursements will be for the region.

What are the Wage Index Project Results?

As a result of this year’s project, which will impact FY 2017 reimbursement, the wage index factor in Northeast Ohio is expected to be 0.9112. Prior to work on the project, wage index factor was projected to be 0.8660, a change that while numerically small, adds up to $21.6 million in additional Medicare reimbursement. To be sure, these extra dollars are important to member hospitals, but they only tell part of the story. What isn’t captured in the $21.6 million is the impact the FY 2017 wage index results will have on Medicare Advantage, which – if included – would increase the impact by 35 to 40 percent.

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