Information on Medicare's Hospital Inpatient Routine Operating Cost Reimbursement Limits for Duluth-Superior

The methodology which the Health Care Financing Administration (HCFA) uses in establishing Medicare's reimbursement limits for hospital inpatient routine operating costs was questioned. GAO was asked to investigate the HCFA methods in establishing the wage index used in the July 1, 1979 and 1980, reimbursement limits.

The hospital inpatient routine operating cost reimbursement limit is the ceiling placed on Medicare payments to hospitals for such routine costs as room, board, and general nursing services. These limits are currently set at 108 percent of the mean of routine costs of hospitals. Generally, hospital costs in excess of the limits are not reimbursed by Medicare. To establish hospital reimbursement limits, HCFA derives the wage portion by dividing data from the Bureau of Labor Statistics (BLS) on the average wage level of the hospital industry for the area in question by the average wage level of the hospital industry nationwide. HCFA and BLS officials agree that there are inherent problems in using BLS data in the way in which HCFA does. However, these data are the best currently available. The problems include the facts that: (1) the wage indexes developed by HCFA are based on data which are 2 years old; (2) the wages are not reported on a full-time equivalent basis resulting in part-time personnel and regional differences in the use of overtime distorting the wage indexes; (3) the data do not distinguish among hospital occupational categories; and (4) confidentiality requirements preclude BLS from disclosing the wage and employment data for areas with fewer than three hospitals. Incorrect reporting proved to be a problem in the Duluth-Superior wage index. However, the GAO review showed that the area index was computed properly based on BLS data for the years beginning July 1, of 1979, 1980, and 1981.