RSM Resources

November 2007

On September 28, 2007, the Centers for Medicare and Medicaid Services (CMS) posted corrections to the Hospital Inpatient Prospective Payment System (IPPS) final rule for FY08, which had been published August 22, 2007. Corrections will appear in the October 10, 2007 issue of the Federal Register. An “inadvertent technical error” had been made while calculating:

• Hospital specific rates for sole community hospitals and Medicare dependent hospitals
• Recalculated standardized amounts
• Outlier threshold payments for high cost medical services

Hospital-specific rates affect the calculation of budget neutrality factors for the following key reimbursement components:

• Diagnosis Related Group recalibration
• Wage Index
• Geographic Reclassification Rural Floor (wage index for hospitals located in rural areas)

Also, technical errors for several providers were made which were specific to their classification or reclassification for the 2008 year.

AREA WAGE INDEX INCREASES

Occupational Mix Adjustment FY 2008

• CMS will apply the occupational mix adjustment at 100%.
• CMS assigned an average occupational mix to hospitals which did not respond with data.
• CMS is discussing penalizing hospitals for not responding with occupational mix data.

Medicare Geographic Re-class Application and Out-migration Adjustment

• Employee commuting patterns were considered in the final rule. Some providers may need to perform an analysis to quantify whether their geographic reclassification and an out-migration adjustment will still deliver the best payment outcome.
• “The 45-day period to withdraw or terminate reclassification requests begins the day the proposed rule is published in the Federal Register.” (Section 412.23(d) for MGCRB reclassifications)
• CMS has reported that 365 hospitals received wage-index reclassifications for FY 2008.
• Specifically addressed were Section 1883(d) (8) (B) hospitals commonly referred to as the “Lugar County” hospitals.
• An out-migration adjustment will be calculated with post-reclassified wage indices for FY 2008.

Wage Index – Rural Floor

• CMS has limited its application of the rural floor to FY’s 2005, 2006, and 2007.
• CMS will continue the imputed rural floor measure for FY 2008, but will let it expire for the FY 2009.

Wage Index – Multi-campus Hospitals

• CMS has indicated that providers with multi-campus settings will have their wages and hours apportioned to the respective labor markets based upon location of full-time-equivalent (FTE) staff.

Wage Index Contracted Labor – Indirect Patient Care

• CMS will continue to review for inclusion of unreported contract labor for indirect patient care areas.
• 98.7 percent of all hospitals will change by less than one percent if such cost was reported.
• 119 hospitals would experience no change in their wage indices if such cost was reported.

Recommended Action

Worksheet S-3 Part II Wage index data has arguably become one of the most important cost-report worksheets completed by hospitals, as the reported wage data can have significant financial impact on individual hospitals, as well as other hospitals in the same geographic area, based on PPS-based payments.

All hospital and health system providers should actively manage and review their average hourly wage data. If you find errors, you have a window of opportunity to submit revisions and corrections for wage index data that will be utilized for FFY 2009. However, revisions must be received by December 7, 2007.

We recommend that all PPS healthcare provider centers review their wage index component information completely each year, including:

• Ensure that the reported wage, hours and benefit information data is accurately reported.
• Timely identification and application for specific relief in wage disparity among hospitals in CBSA’s (core-based statistical areas).
• Concurrently review reported-hours-worked reports.
• Involve Payroll and Human Resource departments in identifying changes to pay classification, benefit accounts or other special circumstances.
• Employ a strategy or consultant to ensure a collective analysis of employment, benefits, regulations, or vendor trends impacting wage indices is identified.
• Provider site action plans should include detailed periodic contract and Accounts Payable (AP) reviews for hours.
• Providers should follow up with fiscal intermediary wage index audit adjustments to ensure final wage data is accurate.

Author: Vincent J. Brezovic is a Healthcare Consulting reimbursement manager based in RSM McGladrey's Charlotte, NC, office who works exclusively with for-profit/not-for-profit hospitals nationwide. Contact Brezovic at 704.442.3825 or vincent.brezovicl@rsmi.com.