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Area Wage Index. September 17, 2003. Outline. Session I Overview Current Area Wage Index Facts & Calculations MSA Specifics and Profiles Session II Sleeping Dogs and Edit Checks Hot Topics & Changes on the Horizon Geographic Reclassification Occupational Mix Survey S-3 Samples.

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area wage index

Area Wage Index

September 17, 2003



  • Session I
    • Overview
    • Current Area Wage Index Facts & Calculations
    • MSA Specifics and Profiles
  • Session II
    • Sleeping Dogs and Edit Checks
    • Hot Topics & Changes on the Horizon
    • Geographic Reclassification
    • Occupational Mix Survey
    • S-3 Samples


Healthcare Affiliates, Inc is a national healthcare

reimbursement consulting firm specializing in

governmental reimbursement issues associated with

Medicare/Medicaid , Blue Cross and other payors.

Since 1992 we have performed close to 1,000 consulting

engagements associated with wage index issues alone.

Our primary services are:

  • Area Wage Index (AWI) annual reviews
  • Disproportionate Share Reviews and SSI appeals
  • Cost Report IME, DGME and ESRD Reviews
  • Healthcare Employee Benefit Reviews
  • Specialized Billing Issues


Presented byHealthcare Affiliates, Inc


Cost Reporting Data Used For the Wage Index By Year

  • Data for FFY 2001 (cost reporting periods beginning October 1, 2000 through September 30, 2001) will be used for FFY 2005 wage index computation.
  • For short periods beginning October 1, 2000 through September 30, 2001, CMS uses the longest period, or if two periods are the same length, the most recent period. CMS annualizes short period data.

Table of Hospitals with Various Fiscal Year Ends

Hospital FYE Inpatient Acute Care Acute Outpatient, Home

Rehab& Long Term Care Health, Hospice & SMF

Sept 30, 2000 FFY 2004 Calendar 2004

Dec 31, 2000 FFY 2004 Calendar 2004

April 30, 2001 FFY 2004 Calendar 2004

June 30, 2001 FFY 2004 Calendar 2004

Aug 31, 2001 FFY 2004 Calendar 2004

Sept 30, 2001 FFY 2005 Calendar 2005

Dec 31, 2001 FFY 2005 Calendar 2005

April 30, 2002 FFY 2005

June 30, 2002 FFY 2005

Aug 31, 2002 FFY 2005

For Medicare geographic reclassification purposes the wage index data is used to satisfy the

criteria for a wage index reclassification for the subsequent FFY to the payment year. This

means that the most recent wage index data available at the filing date is used for

reclassification purposes.

awi facts
AWI Facts
  • AWI factor is multiplied times the labor portion of the DRG base amount. This is 71% of the base DRG calculation. (Proposed to be higher)
  • AWI will, in FFY 2005, impact DRG’s, Outpatient PPS, SNF, etc.
  • In FFY 2005 the reduction for Medical Education cost will be at 100%. (Part of “Behind the Sheet Adjustment)
  • Changes have been made in the overhead calculation (Part of “Behind the Sheet Adjustment)
awi facts1
AWI Facts
  • National average has been moving approximately 3% a year. It grew by 6.8% last year.
  • CMS has shortened time frames for Hospital corrections from May to March to February to November. Because of the reduced time frame, these months play havoc with a hospital’s responses.
  • Hospitals in their respective MSAs need to work together. Now!
awi facts2
AWI Facts
  • FIs have edit checks that direct their attention to increases above a certain percentage, their edit checks do not direct them to decreases of any size. (For instance, in FFY 2000, there were 147 hospitals nationwide with $0 for fringes. Forty-seven (47) of those hospitals were in Texas. In FFY 2001,there were still 34 w/o Fringes. In FFY 2003 there were 3 hospitals with $1 in WRC. In FFY 2004, there is 1 hospital with $1 in WRC and 60 with under 10% WRC.
  • The data supplied herein is from various data sources, most from CMS.
  • Of 4,784 hospitals in the latest PUF, 333 were not adjusted
  • 1759 were adjusted after 1/1/03 with all but 124 after 2/2/03
  • Florida had 94 after 1/1/03 – out of 182 hospitals
  • Additional “errors”: there are 13 hospitals with over 40% WRC and 1 at 72%.
  • There is a hospital in Texas with a $9.25 rate.
sample area wage index
Sample Area Wage Index

Salaries/WRCs % Hours AHW Impact

  • Hosp A $40,000,000 40 2,000,000 $20.00 $8.00
  • Hosp B $20,000,000 20 1,100,000 $18.18 $3.62
  • Hosp C $30,000,000 30 1,600,000 $18.75 $5.61
  • Hosp D $10,000,000 10 505,000$19.80 $1.98
  • Total $100,000,000 100 5,205,000 $19.21 $19.21
  • National Average $20.00
  • MSA’s AWI $19.21/$20.00 0.9605
  • If Hospital A increases by $1.00, this would equal a $0.40 increase (40% X $1) to MSA and an AWI change to .9805 ($19.61/$20.00). This is a positive increase of 2% to entire MSA.
  •  To get this same impact we would have to move Hospital D $4.00, or Hospital B $2.00, or Hospitals C + D $1.00 each.

Uses of Medicare Wage Index


Standardized Amount (eff) 10/1/03) – Applicable to DRG Payment pre Discharge

Other Urban and Rural

Large Urban (over 1 Million) (same as Large Urban 4/1/03 – 9/30/03)

71% 29% 71% 29%

Labor Non-Labor 100% Labor Non-Labor 100%

RelatedRelated TotalRelatedRelatedTotal

$3,145 $1,279 $4,424 $3,095 $1,259 $4,354

X .9807 X .9807

$2,963.98 $1,226.48 $4,192.46 $2863.98 $1,228.48 $4,192.46

Note: Congress is expected to legislate use of large urban standardized amount for all hospitals.

“Geographic adjustment factor” (GAF) is computed from the wage index. Wage index to

the power .6848.

The wage index also affects Disproportionate Share Payments (DSH) and Indirect

Medical Education (IME) and the adjustment factor for the labor

related portion of outpatient prospective payment is 60% rather than 71%.


Uses of Medicare Wage Index


The wage index is also used for SNF, Home Health, Hospice,

ambulatory surgical centers, and rehabilitation hospitals (or units).

In Summary

The wage index is a primary determinant of Medicare Payments.

Wage Index Examples:

Wage Index

Highest: Oakland, CA 1.5058

Average: 1.0000

Lowest: Dothan, AL .7734


Wage Data Corrections

  • 4 Year Old Data from Worksheet S-3
    • FFY 2004 Wage Index based on FFY 2000 data
  • Increased Volume of Corrections
    • 1997 Wage Index: 13% of hospitals
    • 2001 Wage Index: 32% of hospitals
    • 2002 Wage Index: 30% of hospitals

Desk Audit Issues

  • Inconsistencies among auditors, FIs
  • Definition of self-insurance.
  • Calculations of costs under GAAP.
  • Allocation of wage costs to exclude units (salaries v. hours).
  • Reasonable, Sample, AWI vs. cost report, Refiling CR, overall documentation, etc.

Appeal Rights

  • CMS policy: no appeal to PRRP to challenge incorrect wage data if hospital failed to comply with all steps of data verification process.
  • Expedited Judicial Review

Midyear Corrections

  • Only if hospital can show FI or CMS error in tabulating data and hospital did not know or have opportunity to correct prior to start of FFY
  • Corrected WI applied prospectively only.
  • Hospitals can not seek correction of another hospitals wage data in this process.
  • Does not preclude hospitals from appealing to challenge WI based on erroneous data (if procedures followed).

Comparability of Wage Data

  • Statute requires comparison of area’s wage level to national average wage level.

Wage Index Appeals

  • Timing: 180 days from publication of final wage index.
  • Group Appeal?
  • Expedited Judicial Review?
  • Relief: Retrospective or Prospective.
area wage index calendar
Area Wage Index Calendar
  • Audit/desk review 10/1 to 11/15 Not Happening
  • Hospital review of adjustments 11/15 to 11/25 9/15 to 11/15
  • FI submits data to HCRIS file 11/26/02 Early Feb
  • Updated HCRIS file released 1/8/03 Adjustments to Adjustments 3/8
  • Last day for Hospital to update and document 2/8/03 Initial 11/15, A to A 3/8
  • Last day for FI to transmit final data 4/9/04
  • First “preliminary” release 6/5/04
  • Correction of transmission errors only 7/5/04
  • Final rate publication 8/1/04
  • Rates go into effect 10/1/04

Note: This schedule may be compressed because #’s 9 and 10 can not change

area wage index calendar1
Area Wage Index Calendar

Our suggestions: Get your MSA organized

  • Prioritize Hospitals and MSA’s

a.Hospitals that dropped for FY 2004 or prior

b.Hospitals with apparent issues

c.Hospitals with “hits” (teach, I/R, CRNA, other)

  • Prepare and perform field work now on #1’s.
  • Handle all questions
  • Review S-3’s as adjusted by FI for Hospitals not addressed in #1 above.


Data available now Not yet

Avoid delays from FI’s side Still

Ensures multiple levels of review No

Still allows for additional changes later No

awi calendar
AWI Calendar

TimeframeSteps in Wage Index Development Process

Mid-SeptemberPreliminary and unaudited wage data file published as a public use file (PUF) on CMS website.

Mid-NovemberDeadline for hospitals to send requests for revisions to fiscal intermediaries.

Early FebruaryFiscal intermediaries review revisions and desk review wage data; notify hospitals of changes and resolution of revision requests; and submit preliminary revised data to CMS.

Early MarchDeadline for hospitals to request wage data reconsideration of desk review adjustments and provide adequate documentation to support the request.

Early AprilDeadline for the fiscal intermediaries to submit additional revisions resulting from the hospitals' reconsideration requests.This is also the deadline for hospitals to request CMS intervention in cases where the hospital disagrees with the fiscal intermediary's policy interpretations.

Early May*Release of final wage data PUF on CMS web site.

Early June*Deadline for hospitals to submit correction requests, to both CMS and their fiscal intermediary, for errors due to the mishandling of the final wage data by CMS or the fiscal intermediary.



Presented byHealthcare Affiliates, Inc

  • Changes on the Horizon
  • Occupational Mix Survey
  • MSA Changes
  • Congressional Interference
  • Interns and Residents et al

Sample S-3 Review Exercises

Behind the Sheet Adjustments


Occupational Mix Survey

Presented byHealthcare Affiliates, Inc


Occupational Mix Data

  • Benefit Improvement and Projection Act of 2000 (BIPA) states:
    • CMS must collect data every three years
    • CMS must make and OM adjustment to the wage index for FFY 2005 and thereafter.
  • CMS announced in the August 1 Federal Register that CMS plans (after an initial data collection scheduled for late Spring 2003) to include OM data in the cost report forms in future years. Apparently it will be collected annually.
  • GOA computed impacts using data accumulation from California occupational mix data

Occupational Mix Data

  • Why use OM Data to adjust wage indexes? CMS adjusts resource consumption through the weighing factor of the DRG. Theoretically the difference in weighting reflects the relative occupational mix of various hospitals. Using a standard occupational mix eliminated the “double scoring” of occupational mix difference that are accounted for in the DRG weighting. This is expected to improve payment to rural hospital and reduced payment to large tertiary care MSAs.
  • Contrary argument – OM will reduce wage indexes to urban areas with sophisticated teaching hospitals. There is no corresponding higher DRG weighting for the sicker patients treated in the tertiary care hospitals, OM adjustments should be delayed.

Occupational Mix AdjustmentConceptual Overview

Assume two types of employees

National AveragePercent Of

Professional 50%

Non Professional 50%

Total 100%

Occupational Mix Index 1.000


Occupational Mix AdjustmentMetropolis MSA

Tertiary Care and Teaching Hospitals


Metropolis MSA (Tertiary Care and Teaching Hospitals) Wage Index

Professional 55%

Non-Professional 45%

Total 100%

Occupational Mix Index (56e50) 1.1000

Average Hourly Wage & Wage Index $25.00/Hour 1.0762

Occupational Mix Adjustment Factor + 1.10

Occupational Mix Adjustment AHW & Wage Index $22.72 .9780



Occupational Mix AdjustmentConceptual Overview

Statewide Rural Area

Professional Employee 45%

Non-Professional 55%

Total 100%

Occupational Mix Index (45e50) .90

Average Hourly Wage $19.00

Occupational Mix Adjustment Fact + .90

Occupational Mix Adjusted AHW $21.11


Occupational Mix AdjustmentComputed Wage Indexes

Metropolis Statewide Rural

Current AHW $ 25.00 $ 19.00

National AHW + 22.3096+ 22.3096

Current Wage Index 1.1206 .8517

Occupational Mix AHW $ 22.72 $ 21.11

National AHW + 22.3096+ 22.3096

Occupational Mix Adj. WI 1.0184 .9457

Increase (Decrease) (.1022) +.0094

The above example is hypothetical