In this episode, Cody Bales, BESLER Reimbursement Manager, will provide us with a glimpse into the next webinar in our Fundamentals of Reimbursement Series, Wage Index Strategies, presented live on Wednesday, July 24, at 1 PM ET.
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Learn how to listen to The Hospital Finance Podcast® on your mobile device.Highlights of this episode include:
- How a hospital’s wage level is measured
- Potential impact on a provider’s reimbursement
- Ways that hospitals can improve their wage index
- The occupational mix/OC mix adjustment
- Changes to policy and the wage index regulations
Kelly Wisness: Hi, this is Kelly Wisness. Welcome back to the award-winning Hospital Finance Podcast. We’re pleased to welcome back Cody Bales, BESLER Reimbursement Manager. In this episode, Cody will provide us with a glimpse into the next webinar in our Fundamentals of Reimbursement Series Wage Index Strategies that we’re presenting live on Wednesday, July 24 at 1 PM Eastern time. Welcome back and thank you for joining us, Cody.
Cody Bales: Thank you, Kelly, good to be with you.
Kelly: Glad to have you here. Let’s jump in. So how is a hospital’s wage level measured?
Cody: Hospitals are required, or at least short-term acute care hospitals are required to report wage data annually by way of the Medicare Cost Report that is submitted to CMS. Specifically, the wage data is reported on the Worksheet S-3 series. Now, this data includes wages paid to hospital employees as well as contracted staff. Providers that share a geographic area, then see their data pooled together to create an average hourly wage for the area. This figure is then compared to the national average wage level and creates a value or a factor that can be greater or less than one. Now, of course, it isn’t quite as straightforward as that. There are many potential complicating factors that can alter the final wage index number.
Kelly: Sounds very complex. So, what is the potential impact on a provider’s reimbursement?
Cody: Well, the wage index factor that is developed each year could have a huge impact on reimbursement. Hospitals, of course, receive payments for providing services to Medicare beneficiaries, and those payments are adjusted up or down based on the wage index. So, it is essentially a positive or negative multiplier on the facility’s payments received. So obviously the potential is there for the wage index adjustment to translate into millions or tens of millions of dollars in revenue each year. So, hospitals should therefore be doing everything they can to boost their wage index. This includes not only ensuring that the data reported on the cost report is accurate and reflective of their cost of labor but also being cognizant of the potential outside factors that can change the final wage index number. For example, the occupational mix adjustment.
Kelly: Sounds like it has a significant impact. So, what are some ways that hospitals can improve their wage index?
Cody: Regarding the wage data that goes into the cost report, there are several specific areas to review. Hospitals should ensure that the hours reported are consistent with the regulations and exclude, for example, any hours associated with bonuses on-call hours not worked, PTO buyout hours, etc. So, over-reporting of these types of hours is going to result in an understated average hourly wage. It’s also important to avoid mistakes in accounting for hours that are associated with salary reclasses on the cost report. So, for example, if you reclass salaries for non-reimbursable areas or residency programs or exempt units, then you need to also account for the hours. There is no built-in mechanism for this on the cost report, so it’s important to calculate the hours with a methodology that makes sense and to maintain that support. Another potential area for improvement is contract labor. This expense is in addition to salaries paid, and hospitals should have a solid process in place to capture those dollars and vitally, the associated hours and all of the documentation that has to go with it.
There are best practices that the reimbursement department can follow, but also systemic improvements that could potentially be made by involving the accounts payable department and operations in general. Another is if the organization is self-insured for the cost of health benefits paid on behalf of employees, then there’s almost certainly an opportunity to examine this arrangement and report that cost properly. Another area where hospitals should be taking a second look is in the actual allocation of employee benefits in the translation from S-4 Part 4 to S-3 Part 2, there should be a proper methodology that goes into assigning the cost of benefits to excluded areas, interns and residents, physicians and so on. You shouldn’t, for example, allocate the cost of 401k matching contributions to employees that don’t participate in the plan. FICA withholding only applies to up to a certain dollar amount, as another example. So, there are just a lot of specific areas to potentially review.
Kelly: Yeah, sounds like that’s a lot of great ways you just provided to us. So earlier you mentioned the occupational mix. Can you speak more to the importance of that adjustment?
Cody: Sure. The occupational mix or OC mix adjustment modifies the wage data that is reported on the cost report, and it can be a positive or a negative change. Now, this adjustment is the result of a survey that hospitals must complete. This is entirely separate from the cost report and is its own reporting requirement. The survey has to be submitted only every three years. The most recent survey was based on calendar year 2022 data and that was collected last summer. So, for the OC mix survey, it’s really essential to have a handle on payroll and staffing and more specifically, job titles and job responsibilities. The survey requires breaking down wages and hours for certain job categories, mostly related to nursing. It may require corresponding with various hospital departments and personnel to get the proper information because the allocation of the wage data between those categories is critically important to the final result and the eventual wage adjustment.
Kelly: Very interesting. So, are there any other factors related to wage index that providers should be aware of?
Cody: Yes, there are a handful of additional items that can impact the ultimate wage index factor. There are mathematical types of adjustments that come in, for example, the midpoint adjustment factor, budget neutrality. But there’s also more substantive potential items. Providers may have the opportunity to reclassify from their geographic area to another area which may have a higher average hourly wage. There is very precise criteria which has to be met for that, and the options a provider has are going to be very specific to that provider situation and their geographic area. And providers considering a reclassification must be mindful of the out-migration adjustment, as hospitals that receive that adjustment can’t simultaneously do a reclassification.
Kelly: Got it. So, are there any changes to policy or the wage index regulations that hospitals should consider?
Cody: Sure. It seems like we talk about every year, but there have been recent changes to how the rural floor is applied. So as a quick bit of background, the regs provide that any hospital within a state cannot receive a wage index value that is less than the rural wage index for that state, thus referred to as the Rural Floor. So, a complication kind of came in with having to consider urban hospitals, which had reclassified as rural under the regs. So, there was a somewhat recent provision to actually exclude these hospitals wage data from the calculation of the Rural Floor. However, after recent court cases and other considerations, CMS has now reversed that position and now includes the wage data of urban hospitals reclassified as rural in the Rural Floor calculation. Also, just quickly, there was a provision implemented in the federal fiscal year 2023 rule which placed a cap on the decrease for a hospital’s wage index from year to year at no more than 5%, no matter the reason, and that policy continues to be in effect.
Kelly: Great. Thank you for sharing that with us. And thank you so much for joining us today, Cody, and for sharing this sneak peek into our upcoming webinar, Wage Index Strategies, that you’re presenting live on Wednesday, July 24 at 1 PM Eastern time. And as a bonus, you can earn CPE. Thanks again, Cody.
Cody: Thank you, Kelly.
Kelly: And thank you all for joining us for this episode of The Hospital Finance Podcast. Until next time…
[music] This concludes today’s episode of the Hospital Finance Podcast. For show notes and additional resources to help you protect and enhance revenue at your hospital, visit besler.com/podcasts. The Hospital Finance Podcast is a production of BESLER | SMART ABOUT REVENUE, TENACIOUS ABOUT RESULTS.
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