Underpayment for treatment of Medicare patients continues to be among the biggest woes of hospitals with low wage indices. Nevertheless, the wage index persists as one of the weightiest factors that the Centers for Medicare and Medicaid Services (CMS) uses to determine hospital reimbursement rates.
A hospital's wage index is determined by the ratio of average hospital wages in a geographic region to the average wages of all hospitals in the nation. When the national average rises above the regional average, reimbursements for hospitals in those regions drop.
The wage index may not reflect the amount of staff - or Medicare patients - that certain hospitals actually have. A provision of the Medicare Prescription Drug Improvement and Modernization Act has allowed hospitals to request geographic reclassifications with the intended result of more appropriate wage indices.
The provision, Section 508, is set to expire in March 2007.
Senator Chuck Grassley (R-Iowa), Chairman of the Senate Finance Committee, is seeking a six-month extension of the provision, citing the positive effect of reclassification on rural hospitals that have been able to obtain the wage indices of nearby metropolitan hospitals.
Congressman John E. Sweeney (R-N.Y.) has backed Senator Grassley's proposed Section 508 extension on behalf of struggling hospitals in upstate New York. "The wage index problem has cost our hospitals millions in reimbursements for critical care needs for area residents," he said in a press release.
Phillip Schaengold, CEO of University Hospital at SUNY Upstate Medical University in Syracuse, N.Y., said a six-month extension of Section 508 would have no effect on Syracuse hospitals. He said CMS only considers reclassifications for hospitals within 15 miles of a metropolitan area.
"We're the hub of a 17-county area. There is nobody within 15 miles of us," he said.
Hospitals in the New York City region have a wage index that is 30 percent higher than those in Syracuse, while hospitals in the two areas pay similar rates to recruit staff, Schaengold said.
"In a state like New York there is significant disparity in the wage index of the metropolitan area and yet we provide the same level of care," he said.
Some rural hospitals suffer from suppressed wages that cause a drop in the wage index, making a rise in Medicare reimbursements impossible.
"It's what I like to call a death spiral," said BKD Health Care Group partner Eddie Marmouget.
While an extension of the provision would likely help some hospitals still in need of reclassification, its six-month lifespan keeps it from being a long-term solution to the wage index problem.
"I believe the appropriate fix is to look at the wage index in a broader geographic perspective," said Schaengold. "It's in too fine a mode."
The long-term solution needs to be an overhauling of the payment systems we have, Marmouget said. "We have to pay hospitals well for core services. If we do that, the wage index becomes a side issue. But right now, hospitals need to fight for every dime they can get."