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Medicare Wage Index - What it is, how it works, and why it is important

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The Medicare Wage Index is one of the factors that adjust a hospital’s overall payment from the Medicare program. Through the wage index, Medicare is able to maintain a consistent payment structure across IPPS hospitals while recognizing that the cost of labor varies in markets across the nation.

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Medicare Wage Index - What it is, how it works, and why it is important

  1. 1. Medicare Wage Index What it is, how it works, and why it is important
  2. 2. The Medicare Wage Index is one of the factors that adjust a hospital’s overall payment from the Medicare program. Through the wage index, Medicare is able to maintain a payment structure across IPPS hospitals while recognizing that cost of labor varies in markets across the nation.
  3. 3. Smaller hospital several miles away from a major metropolitan area Lower wage index value Larger metropolitan hospital in a higher cost area Higher wage index value How the wage index works These differences in wage index values allow a hospital in the larger area to offer higher salaries to its employees. Generally, it costs more to live in the major metropolitan area and larger hospitals offer more acute services, therefore, the higher average hourly wage (AHW) can be substantiated.
  4. 4. Wage index data comes from a variety of sources Wage index forms from the Medicare Cost Report (worksheet S-3 Parts II and III) HospitalWage Index Medicare Occupational Mix Adjustment (MOMA) Survey Hospitals' payroll records, contracts, and other wage-related documentation.
  5. 5. In order to construct each IPPS hospital’s wage index value, the Centers for Medicare and Medicaid Services (CMS) calculates an average hourly wage for: Each Core-Based StatisticalArea (CBSA) established by the Office of Management and Budget (OMB) Each residual, or “rest of state,” area; (that is also labeled as a rural area).&
  6. 6. A labor market area's wage index value is the ratio of the area's average hourly wage to the national average hourly wage. CMS develops two average hourly wage calculations • Area average hourly wage= total wage costs total hours for all hospitals in the geographic area • National average hourly wage = total wage costs total hours for all hospitals in the nation
  7. 7. The wage index adjustment factor is applied only to the labor portion of the standardized amount in the calculation of the hospital’s Medicare payment.
  8. 8. For more about the wage index including exemptions, labor markets, the occupational mix survey and more, download this special report now https://www.besler.com/specialreports

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