Sebelius submits wage-index revamp plan

HHS recommends using commuting data to establish a labor market area and wage index value for each hospital as a way to reform the Medicare wage index system, according to a new report that HHS Secretary Kathleen Sebelius sent to Congress (PDF).

The 2010 healthcare reform law required HHS to submit a comprehensive plan to change the system, which the healthcare industry expected last December. The 66-page report highlights the current wage-index methodology, which uses metropolitan statistical areas (MSA) labor market definitions established by the Office of Management and Budget.

“The current system establishes wage indices for hospital labor market areas, not for individual hospitals,” the report said. “Many parties have argued that these definitions often do not reflect the true cost of labor for any given hospital, particularly for hospitals located on the periphery of labor markets or at labor market boundaries,” the report said.

HHS proposes a commuting-based wage index, or CBWI, a system it says “would use smaller, more discrete labor areas and only incorporates wage data from hospitals that actually employer workers in that area.” The report addresses five issues related to implementing this system for the Medicare hospital inpatient prospective payment system: available and accurate commuting data, the potential for labor-market distortions due to hospitals changing hiring patterns as a response to changes in the wage index, portability to other Medicare payment systems, the need for exceptions, and a transition to a new system.

Eric Zimmerman, a partner with McDermott, Will and Emery in Washington, said the CMS acknowledges that implementing a new system would require statutory change. “It's a politically thorny issue that will be very difficult for Congress to embrace and advance,” he said. “And as such, it is probably not going anywhere in the short term.”