In OIG Report No. A-01-17-00500 (the OIG Report), OIG allegedly identifies “significant vulnerabilities” in the wage index system that result in inappropriately-adjusted Medicare payments. The OIG Report recommends several legislative actions to CMS for addressing these vulnerabilities. The most notable non-legislative recommendation is for CMS to work with Medicare Administrative Contractors (MACs) to “develop a program of in-depth wage data audits at a limited number of hospitals each year.” Hospitals whose wage data have a high degree of influence on the wage index in their area can expect to be the focus of such wage data audits.
The inpatient prospective payment system (IPPS) sets predetermined rates for patient discharges, which CMS pays to hospitals. CMS collects a variety of wage data from hospitals via their Medicare cost reports, such as wages, associated hours and wage-related costs. In general, CMS uses that wage data to account for local labor prices as part of a wage index. The wage index, in turn, affects several calculations and adjustments to Medicare hospital payments under the IPPS.
If the wage index is set and adjusted based on inaccurate wage data, corresponding IPPS payments to hospitals will be inaccurate as well. Moreover, inaccurate wage data submitted by one hospital can influence the IPPS payments that other hospitals receive because CMS must update the wage indexes annually in a budget-neutral manner on a nation-wide basis. The OIG Report refers to payments calculated based on inaccurate wage data as “overpayments” or “underpayments,” adopting the vernacular of claims submissions. Although the terms are similar, the wage index process does not provide CMS the ability to retroactively adjust wage indexes to recover overpayments or remedy underpayments.
The OIG Report identifies several purported vulnerabilities in the current wage index system, which are discussed in further detail below.
CMS reportedly lacks authority to penalize hospitals that submit inaccurate or incomplete wage data
The OIG Report states that CMS cannot promote hospital accountability for accurate wage data because it generally lacks authority to penalize hospitals. Only when a hospital misrepresents or falsifies wage data can CMS penalize hospitals. The OIG Report recommends that CMS seek expanded legislative authority in this area.
MAC reviews on a limited basis do not always identify inaccurate wage data
MACs perform “limited-scope desk reviews” of hospitals’ submission of wage data. The OIG Report found such reviews by MACs did not identify inaccurate wage data in the five audits conducted by OIG. The OIG Report recommends that CMS develop with the MACs a program of in-depth wage data audits at a limited number of hospitals “whose wage data have high levels of influence on the wage index of their area.” This recommendation is in lieu of the MACs performing “limited-scope desk reviews” for all hospitals in their area.
Hold-harmless provisions in federal law and CMS policy pertaining to geographically reclassified hospitals’ wage data decrease wage index accuracy
Hospitals can seek geographic classification to an area with a higher wage index for purposes of receiving a higher IPPS payment rate, so long as certain requirements are met. Because wage indexes are implemented in a budget neutral manner, other hospitals must have their wage indexes lowered when a hospital reclassifies to receive a higher wage index. However, federal law and CMS policy protect hospitals from having their wage index lowered as result of geographically reclassified hospitals. The OIG Report states that this policy purportedly leads to decreases in wage index accuracy. Therefore OIG recommends legislative changes to repeal this federal law and for CMS to rescind its policy.
OIG suggests that implementing a commuting-based wage index may be more likely to reflect the true cost of labor
Lastly, the OIG Report discusses implementing a commuting-based wage index (CBWI) and repealing the current wage index system. The OIG Report cites to concerns raised by MedPAC and a report from the Secretary of HHS, both of which allege that the current wage index does not reflect the true cost of labor. In contrast to the current wage index system, the CBWI uses “smaller, discrete labor market areas . . . from hospitals that actually employ workers in that area.” The OIG Report generally recommends for CMS to revisit reforming the current wage index system, including the possible implementation of the CBWI.
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In summary, the OIG Report recommends several legislative changes to address perceived vulnerabilities in the current wage index system. Hospitals should be aware of these recommendations, but it is unlikely that any such legislative changes occur in the near future. In the short term, however, hospitals can expect CMS to work with MACs to bolster wage index audits, as recommended by the OIG Report, especially for those hospitals whose wage data has a high degree of influence on the wage index in their area.
