Michigan health & hospital association

1. Michigan health & hospital association Medicare Wage Index Project FFY 2015 Data FFY 2011 and Subsequent Years Data October 9, 2013 Presenter: Dale Baker Baker Healthcare Consulting, Inc. Dial in Number:1-888-809-4012 Access Code: 7038619 Please mute your phone by pressing *6 once you have entered the conference call.

2. TOPICS We will follow the book: The Basics – Wage Index 2014 Wage Indexes Hot Topics Special Considerations Work Plan The Future of the Wage Index

3. Page 1 Wage Index Calculation Flow shows the use of the data CMS 2552-10 replacing 2552-96 and instructions Also, the Wage Index Instruction Form Occupational Mix Survey Instructions and background August 19, 2013 Federal Register provisions includes instructions. 2011 Federal Register provisions for pension cost finding (not wage index) Finally Data on the “Access Clause” for Contracting FIRST THE BACKGROUND MATERIALS

4. THE BASICS

5. Cost Reporting Data Used For Wage Indexes By Year Data for FFY 2011 (cost reporting periods beginning October 1, 2010 through September 29, 2011) will be used for FFY 2015 wage index computation. For short periods beginning October 1, 2010 through September 29, 2011, CMS uses the longest period, or if two periods are the same length, the most recent period. CMS annualizes short period data.

6. Cost Reporting Data Used For Wage Indexes Wage data includes: Salaries and hours from IPPS hospitals (including paid lunch hours and hours for military leave and jury duty) Home Office Salaries and hours Certain contract labor: direct patient care, some top management, pharmacy, lab, physician nonteaching Part A costs, dietary, housekeeping & administrative, and general (includes legal, audit and consulting). Wage-related costs Certain outpatient services included in OPPS (e.g., ED, provider-based clinics) Physician Part A (non-teaching) Wage data excludes: Non-IPPS services, GME, CRNAs, RHC & FQHCs, CAHs, physician Part B and Physician Part A teaching.

7. Table For Hospitals With Various Fiscal Year Ends

8. CALCULATION OF FFY 2013 WAGE INDEX EXAMPLE METROPOLIS METROPOLITAN STATISTICAL AREA (MSA) CMS Average Wages & Wage Inflation Inflated Hourly Hospital FYE Related Costs Factor Wages Hours Wage City 9/30/11 $ 60,000,000 1.01768 $ 61,060,800 1,355,915 $45.03 Memorial 12/31/11 50,000,000 1.01235 50,617,500 1,406,912 35.98 University 6/30/11 190,000,000 1.00288 190,547,200 3,956,403 48.16 Suburban 3/31/11 90,000,000 1.00736 90,664,200 2,602,093 34.84 Totals $390,000,000 $392,889,700 9,321,323 ÷ 9,321,323 MSA Average Hourly Wage $ 42.1496 National AHW ÷ 38.3698 Computed WI 1.0985 Budget Neutrality Adjustmentx .99015 2013 Final Wage Index 1.0887 A separate wage index is computed for each Metropolitan Statistical Area (or each Metropolitan Division) and each statewide rural area. The above example does not demonstrate the effect of the Medicare occupational mix adjustment which is used to adjust the wages as included in the above example. Also, a rural floor applicable to certain urban areas budget neutrality adjustment (2013 is .99134) to reduce the wage index for these amounts.

9. Uses of the Medicare Wage Index Wage Index <1.0000Wage Index >1.0000 62% 38% 100% 69.6%* 30.4% 100% Labor Non Labor Non RelatedLaborTotalRelatedLaborTotal $3,329.67 $2,040.71 $5,370.28 $3,737.71 $1,632.57 $5,370.28 Example WI x .9831x 1.0887 Base DRG Payment Wage $3,273.30 $4,011.15 Non-Wage $2,040.71$1,632.57 Total $5,314.01 $5,643.72 Times to DRG weighing factor

10. Uses Of The Medicare Wage Index OTHER The wage index is also used for SNF, Home Health, Hospice, Ambulatory Surgical Centers, and Rehabilitation, Psychiatric and Long Term Care Hospitals (or units) and End Stage Renal Disease providers. In Summary - The wage index is a primary determinant of Medicare payments. Wage Index Examples: Including Occupational Mix Adj. Wage Index FFY 2014 FFY 2012 Highest: Santa Cruz, CA 1.7276 1.6996 Average 1.0000 1.0000 Lowest: Rural Alabama .7094 .7277

11. Hospital with 5,000 Medicare discharges: Perhaps: $397,000 - $431,000 Plus DSH & IME Impact of 1% Increase of a Wage Index

12. National Average Hourly WageFFY 2007-2013 FFYAverage Wage% of Prior Year 2014 $38.37 102.43% 2013 37.46 103.34% 2012 36.25 103.66% 2011 34.97 104.29% 2010 33.53 104.00% 2009 32.24 104.31% 2008 30.91 104.26% 2007 29.65 105.89%

13. CMS has discontinued publishing wage index and statistical tables in the Federal Register. Go to the CMS website to obtain these tables. WAGE INDEX & STATISTICAL TABLES

14. See Workbook Local Wage Indexes

15. September 13, 2013 CMS releases public use files • November 21, 2013Receipt deadline for hospital to submit wage data and hour revisions to intermediary (or Medicare Administrative Contractor – MAC). Revisions will be accepted applicable to wage index data and revisions of MOMA data hospitals must include “adequate supporting documentation". • February 10, 2014 FI’s complete desk reviews and transmits data to CMS. FI’snotify State hospital association of non-responsive hospitals. • February 20, 2014 Public Use File released. • March 3, 2014Hospital deadline to request data correction due to mishandling of data by FI or CMS. 2015 WAGE INDEX TIMETABLE

16. April/May, 2013 Publication of Proposed IPPS Rule. • April 16, 2014Receipt deadline to appeal Fiscal Intermediary determination to CMS with a copy to the Fiscal Intermediary. • May 2, 2014 Public Use File is published with almost final data. • June 2, 2014 Hospital deadline to request changes due to Fiscal Intermediary or CMS handling errors. • August 1, 2014 Final IPPS Rule issued. • October 1, 2014 Effective date of Medicare wage indexes. 2015 WAGE INDEX TIMETABLE (Cont.)

17. Receiptby MACs of adjustments by November 21, 2013 deadline with "supporting documentation”. Obtain written denial from MAC by March 3, 2014. Receipt of request for CMS review (copy to MAC) by April 6, 2014 deadline send adequate support. CMS responds generally in June/July 2013 timeframe. Appeal request must be filed within 180 days of publication of Final Wage Index – expected publication date in August of 2014. Repeat process for subsequent years. If in doubt – protect appeal rights. Draft letter in workbook. Note: Hospitals can also file appeal request within 180 days of receipt of the Notice of Program Reimbursement. CRITICAL PATH FOR APPEAL RIGHTS FFY 2015

18. An adjustment returns approximately 40% of its value to hospitals in each MSA. Hours adjustments are powerful and frequent. Pretend you are the only hospital in your MSA (statewide rural area) in considering materiality. MATERIALITY

19. New Survey Calendar 2010: Instructions are very similar to 2007-2008 Survey. Will be used for FFY 2013-2015 wage index. Data is simple looking data: Paid Paid Salaries Hours AHW Nursing occupations RNs LPNs & Surgical Technologists Nursing Aides, Orderlies & Attendants Medical Assistants Total Nursing All other occupations Total TO PROPERLY COMPLETE THIS SURVEY SEEK INPUT FROM NURSING ADMINISTRATION AND--AS APPLICABLE-- OTHER OPERATING PERSONNEL. CHANGES CAN BE SUBMITTED TO THE MAC BY THE DECEMBER 2012 SCRUBBING DEADLINE. HOT TOPICSOCCUPATIONAL MIX SURVEY

20. MOMA BASICS Best to worst line items Nursing aides, orderlies & assistants Medical assistants LPNs and surgical technologies RNs “All other” is a neutral but generally desirable category.

21. 20102007-08 RNs 72.14% 78.68% LPNS 7.45 11.25 Nursing Aides, Orderlies & Attendants 17.45 10.07 Medical Assistants 2.96 -0- Nursing subcategory 100% 100% Subtotal Nursing 39.59 36.86 All Other 60.4163.14 Total 100%100% Note that 2010 survey data as of September 2012. Hours is the “driver” for OMA - CMS uses National AHWs – virtually no impact for individual hospitals. NATIONAL % OF HOURS PER SURVEY

26. Use the Baker Healthcare Consulting estimator to play “what if games” with your data. See the Workbook. BHC website is Baker-healthcare.com WHAT IF?

27. CMS manualizes policy to exclude hours, wage related costs and salaries of capitalized salaries. Un-accrued PTO hours at year end are to be recognized on the "cash basis" – when paid in the subsequent year. Some hospitals had excluded these hours in subsequent year. CMS claims better matching (paid vacation hours of prior year are consistent year to year). Fully accrued hours should be fine and includable. But are very rare in hospital systems. OTHER CHANGES

28. May 2008 CMS releases Revision 18 to PRM formalizing policy. • July 2008 – via private e-mail, CMS clarifies that financial audits are includable. • How much is includable? • MACs accepted billing hours and amounts (generally) right off invoices. • Obtaining hours from venders is very important. • Equipment, travel, overhead is generally excluded, but for consulting, audit and legal fees right off invoices have been accepted. HOT TOPICSLEGAL AUDIT & CONSULTING SERVICES

29. What is included?“Any contract service included on Worksheet A, line 6, column 2. Contract information service, legal services, tax preparation services, and cost report preparation services are examples of contract labor costs includable on line 22.01”. HOT TOPICSLEGAL AUDIT & CONSULTING SERVICES

30. CMS also clarified that on line 9 Personnel Costs for Contract Management and Administrative Services include such positions as “Director of Pediatrics, Laboratory Services, Administrator, Blood Bank Manager, Administrative Assistant in the Department of Cardiology, SICU Ward Clerk, and Medical Secretary in the Obstetrics Department.” CMS has broadly defined A & G contract labor what is includable. HOT TOPICSLEGAL AUDIT & CONSULTING SERVICES

31. Scour "purchased services" for high hourly amounts that are includable. • How about medical record coding engagements? • Charge Master Review • Employment agency fees • Executive recruiter fees • A/R consulting • Outsourced department management (lines 9.03 and/or 22.01 • Get creative!! WHAT TO DOLEGAL AUDIT & CONSULTING SERVICES

32. Now – the dark side: Revision 20 to the PRM (August 2009) in the instructions to line 22.01 (contract A&G). "Do not include on line 22.01 any costs for contract labor home office personnel (these costs are not currently included in the wage index". HOT TOPICSLEGAL AUDIT & CONSULTING SERVICES

33. CMS subsequently allowed these costs under the theory that the instructions have been interpreted to prevent a “double dip” inclusion on both the home office and contract service lines. Aggressive position has prevailed Hours and Rates right off the invoices. Precedent – Agency Nurses Not in accordance with CMS' instructions (for Agency Nurses or for other) HOT TOPICSLEGAL AUDIT & CONSULTING SERVICES (cont.)

34. States termination PTO hours need not be included in line 1. Membership in fitness clubs paid by hospital is not self insurance (not a WRC) Asks hospitals to provide documentation that self-funded insurance costs do not exceed costs of commercial policy. Note: Sub regulatory guidance not necessarily uniform across country. MAC Distributed WI Desk Review Questionnaire

35. I. "Bogus" Hours Issues: • Self-funded disability “hours”: Favorable decision at: District Court level in Rochester, NYCMS settled case Court decision vacated as a condition of settlement. New favorable unanimous PRRB decision received 10/11/11 • Baylor Plan hours: Description Status of issue in Appelate Court in Cincinnati New favorable unanimous PRRB decision received 10/11/11 • Lunch hourDescription Chicago Court of Appeals ruled against hospitals II. “Shared Culpability” Issues: • Michael Reese case settled $7 million at Appellate Court in Chicago. • Santa Cruz, CA MSA now before the PRRB a on similar issue. WAGE INDEX APPEALS

36. VII. Pension & Post Retirement Benefits • Historically since 1994 GAAP • OIG audits February 2005 • OIG memo to CMS May 2005 • August 11, 2005 Federal Register – CMS requires “funding” to include GAAP costs. • Retroactive to periods beginning as early as October 1, 2002 • Selective implementations by FI • Does solution make sense? ERISA not GAAP includability? • California Case appealed June 14, 2011 • Hall Render/BHC cases heard at PRRB on April 10, 2012 WAGE INDEX APPEALS

37. All 5 Campuses of University of California were adjusted. Reduces payment by approximately $90 million for FFY 2007 for California. San Diego, Los Angeles (and reclassified into LA) Orange (reclassified into Orange), San Francisco and Sacramento wage indexes Hooper Lundy & Bookman is coordinating Dale Baker testified for two hours – inconsistency throughout the U.S. BHC working with hospitals perhaps $300 million in controversy (approximately 400 hospitals) 2007-2011 April 10, 2012. PRRB denied – lacks jurisdiction on to DC District Court. Appeal Issues Pension

38. Background:Balanced Budget Act of 1997Budget Neutral Rural Floor for Urban Wage IndexesCMS implemented in a “budget negative manner”.Approximately 2,200 hospitals appealed this issue 2007-2011 Favorable settlement April 15, 2012Another 500 hospitals appealing now. HOT TOPICSRURAL FLOOR BNA APPEALS

39. 2007 SSI ratios now include "Medicare Advantage Days". Generally decrease SSI % and DSH payments. Regulation CMS says include MA. Statute says only patients "entitled to Part A benefits. MA are "eligible" for Part A but not "entitled to". Legal Question: Does entitled to = "eligible for“ 1498R Ruling being implemented by MACs Also “Dual Eligible”, “Labor and Delivery Days”, and “Observation Days” Other Appeal Issues

40. REPORTING NEW RULES: CMS implemented a three year funding methodology in 2013 that seems reasonable. We do not contemplate additional pension appeals for 2013 going forward. 2013 PENSION & POST RETIREMENT BENEFITS

41. This approach has largely ended needs for Pension Appeals for FFY 2013 and forward.

42. Use of Diagnostic Review Maximizing wage related costs - Pension audit, legal and consulting - Health insurance – TPA approach - Self-funded health insurance Allocation of fringes to highly paid physicians and CRNAs Work plan review 2015 SPECIAL CONSIDERATIONS

43. Focus on workbook WORKBOOK

44. QUESTIONS

45. THE FUTURE OF THE WAGE INDEX

46. Tax Relief & Health Care Act of 2006 Signed into law December 20, 2006 by Lame Duck Congress Section 106 Required MedPAC to issue a report by June 30, 2007 including “alternatives the Commission recommends to the method to compute the wage index. Provides $2 million funding for the study and

47. Tax Relief & Health Care Act of 2006(TRISHA) Requires the Secretary of HHS to issue for FFY 2009 one or more proposals taking into account the MedPAC report in the IPPS proposed rule due to be published in April 2008. CMS/HHS shall consider: Problems defining labor markets. Modify/eliminate geographic reclassification. Possibly use BLS data. Minimizing variations between and within MSAs and statewide rural areas. Applying components to other care settings (home health, SNF, etc.) Minimize volatility while maintaining budget neutrality. Regional effects and effects on providers. Implementation phase in. Issues related to occupational mix and effect on quality of care and patient safety.

48. MedPAC Proposed BLS Wage Index, Methodology Use Bureau of Labor Statistic data (May & November each year) Include hospital and non-hospital data: 1.2 million establishments on three year cycle. By occupation (eliminate need for Occupational Mix Adjustment (RNs, LPNs, physical therapist, etc)) By county within and outside MSAs Determine wage index for each MSA (presumably metropolitan division)

49. Smoothing Within MSA High cost county(ies) may be increased up to 105% of MSA average. (Smoothing) Lower cost counties (generally outlying counties) can be reduced to 95%. (Smoothing) Maximum “cliff” at county boundary is 10%. Rural counties (outside Metropolitan Statistical Areas) county by county determination. 10% maximum cliff (smoothing) Eliminate geographic reclassification.

50. What’s wrong with the MedPAC proposal? Today’s wage index:Mandatory system virtually all IPPS hospitals participate.Full Year historical hospital data “scrubbed” by hospitals with 100% desk review by FIs (MACs). MedPAC proposal:Wage indexes subjectively modified by “smoothing”Cliffs at county boundary could be 8%, 10% or 12%affecting payment by billions of dollars