CMS Provides Medicare Wage Index Data for Reclassification

August 10, 2020 - UPDATE 08/24/2020: CMS has extended the deadline for hospitals to apply for reclassification of their Medicare wage index area for FY 2022 from Sept. 1, 2020, to 15 days after it releases the final IPPS rule for FY 2021.

CMS recently released wage data so hospitals can determine whether to apply for reclassification of their Medicare wage index area for fiscal year (FY) 2022.

The federal agency said last week that it published the Medicare wage index reclassification data early since the 60-day delay in the effective date of final rule was delayed in the proposed Inpatient Prospective Payment System (IPPS) rule.

The final IPPS rule normally contains the wage data. However, CMS has yet to finalize the IPPS rule proposed in May 2020.

With the new delay of 30 days due to COVID-19, CMS provided the wage data on its website so hospitals have sufficient time before the September 1, 2020, deadline to seek reclassification of their area’s Medicare wage index for the FY 2022 to 2024 reclassification cycle.

The American Hospital Association (AHA) had urged CMS earlier this summer to release the wage data by August 1, 2020, regardless of the timing of the FY 2021 IPPS final rule.

“Typically, final wage index values are available on Aug. 1 each year, allowing hospitals to assess their wage index and determine whether it would be appropriate to apply for reclassification for the following fiscal year. However, this year the final rule could be released as late as Sept. 1, leaving little or no time for hospitals to base the reclassification decision on pertinent data,” the industry group said.

CMS should also grant an extension for Medicare wage index reclassification applications as it has done in the past for hospitals affected by other public health emergencies, like hurricanes, the AHA stated.

The group had also suggested that CMS allow hospitals to submit incomplete reclassification applications to the Medicare Geographic Classification Review Board (MGCRB) by the September 1, 2020, deadline, providing more information once the final 2021 wage index was published.

CMS was just shy of providing wage data by August 1, 2020. At this time, the agency is still enforcing the September 1, 2020, deadline for Medicare wage index reclassification.

The Social Security Act requires CMS, as part of the methodology for calculating prospective payments to hospitals, to adjust the standardized amounts “for area differences in hospital wage levels by a factor (established by the [HHS] Secretary) reflecting the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level.”

The adjustment factor, or wage index, can increase IPPS payments to hospitals based on the local labor market compared to national hourly wages.

CMS currently defines hospital labor market areas based on the delineations of statistical areas established by the Office of Management and Budget (OMB).

The proposed FY 2021 IPPS rule included changes to the hospital wage index for acute care hospitals, including revised labor market areas delineations from OMB and a 5 percent cap on wage index decreases in FY 2021.

If adopted, the changes to the labor market areas could affect over 100 counties, according to healthcare lawyers from Hall render Killian Heath & Lyman PC.

Hospitals should assess whether they qualify for reclassification based on the new wage data, the lawyers stated in a recent Lexology article. Hospitals should also determine whether they should file an MGCRB withdrawal or termination.

The reclassification could improve the wage index for IPPS payments, they said.

The 5 percent cap on wage index decreases in FY 2021 will help to offset dramatic IPPS payment decreases as a result of new OMB delineations for hospitals in some areas.

However, the AHA said the proposed cap could affect Medicare wage index reclassification next fiscal year.

“In some cases, because of the timing of a hospital’s MGCRB approval for reclassification, the final rule may not contain a hospital’s final reclassified wage index for the fiscal year,” the group told CMS. “Thus, we recommend that CMS consider the hospital’s final reclassified wage index value, which may be identified from the Provider Specific File, when applying the 5% cap, even if that value is finalized after the issuance of the final rule.”