HCFA is considering allowing states to tinker with their own Medicare wage-index formulas, but observers say few states are likely to try it.
"Some hospitals at first blush may think this sounds like a good idea, but once they see all the fine print they'll see it would be difficult to implement," said Mark Callan, assistant vice president of economic information systems for the Hospital Association of New York State.
In the Federal Register last month, HCFA proposed allowing states the option of designing their own labor-market area, a proposal known as SLMO, or state labor-market option. It's called "slow-mo" by those familiar with the plan.
HCFA suggested state hospital associations could head up the task of reconfiguring labor-market areas, a key ingredient in the wage-index formula. However, such a job likely would redistribute Medicare reimbursements, and state hospital associations may find it "politically difficult to propose a `slow-mo,'*" said Dale Baker, president of Baker Healthcare Consultants, Indianapolis, which specializes in Medicare reimbursement.
The wage index determines about 70% of the reimbursement hospitals receive from Medicare, making it a crucial and controversial element of the payment formula. HCFA has often struggled with ways to make the wage index more fair, most recently researching a proposal called "nearest neighbors," which uses hospitals' nearest competitors to redefine the labor market (June 6, p. 26).
"Today's system has some serious flaws in it," Mr. Baker said, adding that the SLMO proposal is a first for HCFA. It shows that the agency has "come to the realization that this country is so diverse that anything they try to do nationally isn't going to work somewhere," he said.
The wage index now is based on metropolitan statistical areas, which are defined by the federal Office of Management and Budget. However, HCFA says in the Federal Register that a state "may, in some circumstances, have better information than HCFA concerning local labor-market competition between hospitals."
HCFA also says an SLMO application would have to draw "overwhelming" support from the state's hospitals. In one part of the proposal, HCFA says every hospital chief executive officer or chief financial officer in the state would have to sign a statement supporting the option. HCFA later says 75% support might be considered, but that every hospital that would lose more than 5% of payments would have to agree.
HCFA also may consider allowing select hospitals to participate in a state; remaining hospitals would continue to operate under the current formula.
In addition, the state's total Medicare reimbursement could not increase, meaning that if Arkansas designed its own system, it couldn't garner increased reimbursement at the expense of a neighboring state.