Wage Index Training NWO HFMA February 15, 2018
What is Wage Index? Section 1886(d)(3)(E) of the Social Security Act, Adjusting for Different Area Wage Levels, requires that as part of the methodology for determining prospective payments to hospitals, the Secretary must adjust the proportion of hospital costs attributable to wages and wage related costs for area differences in hospital wage levels. This adjustment factor, the wage index, reflects the relative hospital wage level in the geographic area compared to the national average hospital wage level. 2
What is the Wage Index Factor (WIF)? The WIF measures relative differences between each labor market s average hourly rate and the national average hourly rate. The WIF is a cost of living differentiator that is a primary driver in determining a health care provider s reimbursement under the Medicare Prospective Payment System (PPS). 3
Average Hourly Wage (AHW) Hospital compensation and paid hours are included to develop the geographic market s average hourly wage (AHW) weighted based on total adjusted salaries. The geographic market s AHW is compared to the National AHW to calculate the Wage Index Factor (WIF). Total DRG payments for the country are budget-neutral; therefore, the wage index is a zero-sum gain. 4
Example of How the Medicare Wage Index Factor is Calculated Labor Market: ABC Labor Market Hospital Name Salaries Hours AHW % of CBSA Hospital A $ 83,370,874 3,200,000 $ 26.05 23.9% Hospital B $ 49,244,995 1,485,000 $ 33.16 14.1% Hospital C $ 84,619,069 3,500,000 $ 24.18 24.3% Hospital D $ 64,370,601 2,400,000 $ 26.82 18.5% Hospital E $ 67,211,235 2,300,000 $ 29.22 19.3% Total $ 348,816,774 12,885,000 $ 27.07 100.0% Divided by National Average Hourly Rate $ 26.29 Wage Index Factor for ABC Labor Market 1.030 5
How Does Wage Index Work? The WIF is applied to the labor component of the standardized amount which is approximately 65% of the total standardized amount. For FFY 2018: WIF <= 1.00 labor component = 62% WIF > 1.00 labor component = 68.3% The standardized amount is updated annually and published in the Federal Register. Labor markets referred to as a Core-Based Statistical Areas (CBSAs) as defined by the President s Office of Management and Budget. Every state, except for New Jersey and Rhode Island has a rural CBSA. 6
FFY18 National Standardized Amounts FY 2018 CN Tables 1A-1E TABLE 1A. CORRECTION NOTICE NATIONAL ADJUSTED OPERATING STANDARDIZED AMOUNTS; LABOR/NONLABOR (68.3 PERCENT LABOR SHARE/31.7 PERCENT NONLABOR SHARE IF WAGE INDEX GREATER THAN 1) Hospital Submitted Quality Data and is a Meaningful EHR User (Update = 1.35 Percent) Hospital Submitted Quality Data and is NOT a Meaningful EHR User (Update = -0.675 Percent) Hospital Did NOT Submit Quality Data and is a Meaningful EHR User (Update = 0.675 Percent) Hospital Did NOT Submit Quality Data and is NOT a Meaningful EHR User (Update = -1.35 Percent) Labor-related Nonlabor-related Labor-related Nonlabor-related Labor-related Nonlabor-related Labor-related Nonlabor-related $3,806.04 $1,766.49 $3,729.99 $1,731.20 $3,780.69 $1,754.73 $3,704.65 $1,719.43 TABLE 1B. CORRECTION NOTICE NATIONAL ADJUSTED OPERATING STANDARDIZED AMOUNTS, LABOR/NONLABOR (62 PERCENT LABOR SHARE/38 PERCENT NONLABOR SHARE IF WAGE INDEX LESS THAN OR EQUAL TO 1) Hospital Submitted Quality Data and is a Meaningful EHR User (Update = 1.35 Percent) Hospital Submitted Quality Data and is NOT a Meaningful EHR User (Update = -0.675 Percent) Hospital Did NOT Submit Quality Data and is a Meaningful EHR User (Update = 0.675 Percent) Hospital Did NOT Submit Quality Data and is NOT a Meaningful EHR User (Update = -1.35 Percent) Labor-related Nonlabor-related Labor-related Nonlabor-related Labor-related Nonlabor-related Labor-related Nonlabor-related $3,454.97 $2,117.56 $3,385.94 $2,075.25 $3,431.96 $2,103.46 $3,362.93 $2,061.15 7
FFY18 Wage Index Table Table 3- CORRECTION NOTICE WAGE INDEX TABLE BY CBSA - FY 2018 (CONTAINS THE FOLLOWING FINAL DATA: AVERAGE HOURLY WAGE, WAGE INDEXES AND THE GAF. ALSO INCLUDES WAGE INDEXES PRIOR TO APPLICATION OF THE FRONTIER WAGE INDEX AND/OR RURAL FLOOR AS WELL AS AN INDICATOR FOR CBSAs ELIGIBLE FOR THE FRONTIER AND/OR RURAL FLOOR WAGE INDEX) CBSA Area Name State State Code 2 FY 2018 Average Hourly Wage 2 3-Year Average Hourly Wage (2016, 2017, 2018) Wage Index GAF Reclassified Wage Index Reclassified GAF Eligible for Frontier Wage Index 4 Eligible for Rural or Imputed Floor Wage Index 3 Pre-Frontier and/or Pre- Rural or Imputed Floor Wage Index Reclassified Wage Index Eligible for Frontier Wage Index 4 Reclassified Wage Index Eligible for Rural or Imputed Floor Wage Index 3 Reclassified Wage Index Pre-Frontier and/or Pre-Rural or Imputed Floor 35614 New York-Jersey City-White Plains, NY-NJ NJ 31 54.4874 53.6689 1.2876 1.1890 1.2733 1.1799 35614 New York-Jersey City-White Plains, NY-NJ NY 33 54.4874 53.6689 1.2876 1.1890 8
DRG Calculation Inpatient prospective payment system Operating costs Patient discharge date: July 1, 2018 MS-DRG assigned: Simple Pneumonia #195 Hospital location: New York City National rates from FFY2018 IPPS Final Rulings: National (large urban) Labor Non-labor $3,806.04 $1,766.49 Area wage index factor NYC 1.2876 MS-DRG #195 Simple Pneumonia.7099 9
DRG Calculation Regional Area Wage Adjusted Rate Factor Rate Labor $3,806.04 1.2876 $4,900.66 Non-labor 1,766.49 n/a 1,766.49 Base DRG payment rate $6,667.15 MS-DRG #195 Simple Pneumonia.7099 Total patient claim payment $4,733.01 NOTE: There may be add-on amounts for disproportionate share (DSH) or indirect medical education (IME), as applicable 10
Comparison of Reimbursement across CBSAs Ohio Rural Toledo Detroit Columbus Indianapolis NYC Labor 3,454.97 3,454.97 3,454.97 3,454.97 3,806.04 3,806.04 WIF 0.8013 0.8909 0.9000 0.9716 1.0072 1.2876 2,768.47 3,078.03 3,109.47 3,356.85 3,833.44 4,900.66 Non-labor 2,117.56 2,117.56 2,117.56 2,117.56 1,766.49 1,766.49 Total 4,886.03 5,195.59 5,227.03 5,474.41 5,599.93 6,667.15 DRG Weight 0.7099 0.7099 0.7099 0.7099 0.7099 0.7099 Total Patient Claim 3,468.59 3,688.35 3,710.67 3,886.28 3,975.39 4,733.01 # of cases 2,500 2,500 2,500 2,500 2,500 2,500 Total payment 8,671,477 9,220,878 9,276,677 9,715,707 9,938,482 11,832,519 Difference from Previous Column 549,401 55,799 439,030 222,775 1,894,037 Difference from OH Rural 605,200 1,044,230 1,267,005 3,161,042 11
Cost Report Data Worksheet S-3, Part II and III Wage Index values are based on data reported by hospitals on Worksheet S-3, Parts II and III of their Medicare cost reports. These worksheets do not have any impact on Current Year Medicare Settlement they drive future Medicare PPS payments. The FFY 2020 wage index values are based on the data collected from the Medicare cost reports beginning in FFY 2016 (cost reports that began between 10/01/2015 through 09/30/2016). If a hospital has more than one cost reporting period beginning during this period: The longest period should be selected for review (consult MAC) If the periods are the same length, select the latest period 12
Wage Index Change Other wage related costs must be reported on employees or contractors W-2 or 1099 forms 13
Wage Index Timeline The deadline to submit Wage Index revisions to the MAC will be early September 2018. Work with MACs to complete their review by mid-november 2018. Public Use File (PUF) periodic releases of information that contains wage data for all hospital across the country January 2019. ** Note FFY 2020 dates have not been released. 14
Hospital Wage Index Teamwork Hospital departments that should be involved in the development of the wage data prior to a Medicare cost report filing: Accounts Payable Payroll Human Resources Finance Clinical Departments Reimbursement 15 8
Common Issues/Opportunities Salaries Capitalized salaries (be sure to exclude related hours) A-8 Adjustments Worksheet A-8 is not segregated between Salary and Other costs If Salary is included in an A-8 adjustment, consider an A-6 reclassification to move the amount from the salary column to the other column. Make an adjustment to associated hours and fringe benefits PTO Accruals or other salary costs recorded in Employee Benefits Department Consider an A-6 reclassification to move salary cost from this department to the appropriate lines for proper fringe benefit allocation calculation Advanced Practitioners Are they billing separately or not? 16 9
Common Issues/Opportunities Hours Use of canned reports vs Labor Distribution Report (LDR) Complete LDR will give the full picture and each pay code can be analyzed LDR with job titles and/or job codes will make identification of physicians and nonphysician advanced practitioners easier Review of All Pay Codes Count only those hours included in the definition of a Full-Time Equivalent (FTE) = 2,080 hours for exempt employees; 2,080 + overtime for hourly employees Reclassify hours associated with any A-6 salary reclassifications Remove hours associated with capitalized labor 17 10
Common Issues/Opportunities Employee Benefits Pension Calculation for Defined Benefit plans Allocation of Benefits: Salaries or Hours (FTE s) Only allocate benefits to those groups of employees that receive the benefit Interns & Residents likely do not participate in defined benefit plans or other retirement plans Union workers may receive different benefits than other employee groups FICA Cap for high-income earners in excluded areas Self-insurance health insurance costs 18 11
Common Issues/Opportunities Home Office / Other Related Party Allocation methodologies (direct vs. pooled) Physicians paid through the home office Contract labor paid through the home office Fringe benefits paid through the home office 19 12
Common Issues/Opportunities Physician Salary & Hours Salary & Hours should be reconciled to Worksheet A-8-2 Differences may occur for Medical Directors, Non-Physician Advanced Practitioners, and fringe benefits Ensure that any salary amounts that are claimed on Lines 4.00 5.01 are also included in Line 1.00 of Worksheet S-3, Part II Process for acquiring proper documentation for salaried and contracted physicians, i.e. time studies / contracts Only exclude Non-Physician Advanced Practitioners if they bill separately to the Part B Carrier 20 13
Common Issues/Opportunities Contract Labor Collection and analysis of contract labor documentation should be an ongoing task not a year-end task Lack of documentation for from vendors for paid hours Reconciliation to Invoices Only include costs relative to professional fees Do not include travel cost or other expenses Do not include contract labor expensed in excluded cost centers Home Office contract labor should be reported on the appropriate contract labor line, not in the Home Office line Intern & Resident contract labor should be reported on Lines 7.01 and 11.00. 21 14
Questions? 22