FY 2020 IPPS Proposed Rule: Wage Index Changes

The FY 2020 IPPS Proposed rule introduces a new approach to the hospital wage index to address payment differences between low and high wage index hospitals.  CMS proposes to increase the wage index for hospitals with a wage index value below the 25thpercentile (.8482 for FY 2020) and decrease the wage index for hospitals with a wage index value above the 75thpercentile (1.0351 for FY 2020) as well as changing the calculation of the rural floor.  CMS also proposes these policy changes be effective for at least 4 years.

To what extent is Wage Index changing from FY 2019 to FY 2020?

Data Source: CMS, FY 2019 IPPS Final Rule Impact File & FY 2020 IPPS Proposed Rule Table 2.
Data Source: CMS, FY 2019 IPPS Final Rule Impact File & FY 2020 IPPS Proposed Rule Table.

Regardless of whether the proposed quartile policies are implemented or not, the clear majority of hospitals will expereince an increase or decrease less than 5% or no change at all (86%and 92%).  CMS states in the proposed rule that addressing the wage index disparities at the high and low ends ensures those hospitals in the middle do not have their wage index values affected by this proposed policy.    

Why should hospitals be aware?

Although the proposal to address wage index disparities between high and low wage index hospitals is intended to be budget neutral, the effect to the overall change in payment to an individual hospital could be significant. 

Case Hospital Example:  Urban California Teaching Hospital with Wage Index > 75thPercentile

Reviewing an example hospital illustrates a change in payment from 2019 to 2020 using the proposed FY 2020 wage index and the FY 2020 wage index prior to the policy change. In this example, the volume and case mix index remain static to isolate wage index changes.  The other key ingredients to payment include the labor-related operating base rate and the wage index.

  • FY 2020 Proposed Wage Index = 1.8263
  • FY 2020 Wage Index (Prior to Proposed Policy Change) = 1.8619
  • FY 2019 Wage Index = 1.7827

The increase in the labor-related operating base rate as well as the increase in wage index from FY 2019 to FY 2020 drives an overall increase in payment for this facility.  However, payment is $4.3M less than it would have been prior to adjustments to the FY 2020 wage index.

Interested to comment to CMS on the IPPS Proposed Rule?

Be sure to review Table 2 of the proposed rule to see where your facility stands regarding wage index changes.  Comments must be received no later than 5 p.m. EDT on June 24th, 2019.  CMS encourages electronic submission of comments to http://www.regulations.gov.  Follow the instructions under the “submit a comment” tab.

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