- A government payment method meant to increase reimbursement in areas where hospitals pay their employees the lowest wages isn't prioritizing facilities that need the funds the most, according to a new report by the HHS Office of the Inspector General.
- The Wednesday report, issued following a federal audit, found rural hospitals had the highest concentration of low-wage providers. Of all hospitals in the bottom quartile of area wage indexes, 53% were operating in rural areas.
- As a result, the hospital wage index should be revamped to target rural providers operating at low or negative profit margins, OIG suggested.
The government uses the wage index to adjust Medicare rates to reflect wages in a specific geographic area. Accuracy in the index is important to CMS payment systems, which aim to incentivize hospitals to operate efficiently while ensuring they're compensated fairly. Undercompensating facilities can lead to financial stress and even closure, which is especially important to avoid in already underserved rural areas.
In a final rule effective October 2019, CMS tweaked the acute care hospital inpatient prospective payment system, readjusting how it calculates the hospital wage index in a bid to make it more accurate and winnow down the disparity between high- and low-wage providers.
As a result of the rule, beginning in the 2020 fiscal year, the wage index will increase among hospitals below the 25th percentile in wage index for at least the next four years.
As a result of the regulatory change, OIG looked into similarities among hospitals with area wage indexes in the bottom quartile for 2020 to help CMS with implementation.
The bottom quartile tended to be composed of rural, smaller and lower-volume facilities as well, concentrated in just a few states, according to the audit. Of all rural hospitals in the IPPS, 55% had wage indexes in the bottom quartile.
Of the hospitals in the lowest wage quartile, 866 of them were found in just 24 states. Puerto Rico and five other states — Alabama, Arkansas, Louisiana, Mississippi and West Virginia — accounted for a little under half that number, with more than 90% of their overall facilities in the lowest quartile.
More than half the hospitals in the lowest quartile were in states that elected not to expand Medicaid to a larger swath of low-income residents under the Affordable Care Act, OIG found. The availability of Medicaid can effect provider revenue, as expanding the safety-net coverage can lead to previously uninsured patients seeking care, resulting in stronger volume for providers.
States with hospitals in the lowest quartile for wages also had the lowest state minimum wage amounts, and tended to have large disparities in average hourly wages of individual providers. For example, in Kentucky, the hourly wage for employees at acute care hospitals ranged from $25 to $45. That's compared to the national average of $44.15.
OIG found similarly large discrepancies in the rural areas of Tennessee, Texas, Mississippi and Pennsylvania.
The watchdog said CMS should consider studying why some hospitals could pay higher wages than others in the same area in order to best target the wage adjustment on facilities that need it most.
The audit also found wide variation in low-index areas in terms of hospitals' financial performance. Profit margins at hospitals in the bottom quartile of the wage index ran the gamut from a low of negative 133% to a positive 47%, according to an OIG analysis of Medicare cost report data from 2016.
OIG suggested CMS might target the bottom quartile adjustment on facilities with lower profit margins, as they're most vulnerable to negative financial effects from the rule change. OIG also recommended the government monitor wage data as a result to try and determine whether the rule change leads to wage increases, though that could be skewed due to the ongoing coronavirus pandemic.
CMS has said it's open to data collection in this area, having issued a prior request for information on the subject in the 2020 IPPS final rule tweaking the wage index.