Medicare Hospital Payments
Refinements Needed to Better Account for Geographic Differences in Wages Gao ID: GAO-02-963 September 30, 2002The Medicare program's prospective payment system (PPS) for inpatient hospital services provides incentives for hospitals to operate efficiently by paying them a predetermined, fixed amount for each inpatient hospital stay regardless of the actual costs incurred in providing the care. Although the fixed amount is based on national average costs, actual per stay payments vary widely across hospitals, primarily because of two payment adjustments in the PPS. One adjustment accounts for cost differences across patients due to their care needs and the other accounts for the substantial variation in labor costs across the country. The Medicare program's labor cost adjustment may not adequately account for geographic differences in hospital wages because of problems with the definition of labor markets. The geographic areas used by Medicare to approximate hospital labor markets often encompass large areas in which hospitals in different parts of an area or different types of communities pay widely varying wages. Geographic reclassification does not systematically address inadequacies in the way the Medicare program defines geographic areas, although it allows some, but not all, hospitals that may be in distinct labor market and pay wages above the average in their area to receive a higher labor cost adjustment. Geographic reclassification reduces payments to hospitals that do not reclassify because of the budget neutrality requirement, and the amount of this reduction would vary across hospitals under a state-specific budget neutrality approach depending on their location. In 2002, payments to metropolitan hospitals that were not reclassified were 1 percent lower and payments to nonmetropolitan hospitals that were not reclassified were 0.6 percent lower because of geographic reclassification. If the budget neutrality provision were calculated and applied within individual states instead of nationally, the adjustment would be smaller in those states in which hospitals did not benefit much from reclassification and higher in states where a higher proportion of hospitals reclassified.
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Director: Team: Phone:GAO-02-963, Medicare Hospital Payments: Refinements Needed to Better Account for Geographic Differences in Wages
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United States General Accounting Office:
GAO:
Report to Congressional Committees:
September 2002:
Medicare Hospital Payments:
Refinements Needed to Better Account for Geographic Differences in
Wages:
GAO-02-963:
Contents:
Letter:
Results in Brief:
Background:
Medicare Labor Cost Adjustment Does Not Adequately Account for Wage
Differences within Certain Areas:
Through Reclassification, Some Hospitals Receive a More Appropriate
Labor Cost Adjustment:
Budget Neutrality Adjustments Are Relatively Modest, but Would Vary
under a State-Specific Option:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: The Effect of Accounting for Occupational Mix on the Wage
Index:
Appendix III: Average Hospital Wages in Outlying and Central Counties
of Metropolitan Areas, by State, Fiscal Year 1997:
Appendix IV: Average Hospital Wages across Community Types in
Nonmetropolitan Areas, by State, Fiscal Year 1997:
Appendix V: Effect of the Current and a State-Specific Budget
Neutrality Option on Hospital Payments, by State, Fiscal Year 2000:
Appendix VI: Comments from the Centers for Medicare & Medicaid
Services:
Tables:
Table 1: Hospital Wage Variation in the Most Populous Metropolitan
Statistical Areas, Fiscal Year 1997:
Table 2: Average Hospital Wages across Nonmetropolitan Areas in
Selected States, Fiscal Year 1997:
Table 3: Reclassified Hospitals by Wage Level and Community Type,
Fiscal Year 2001:
Table 4: Area Average Wage Compared to Hospital Wage, before and after
Reclassification, Fiscal Year 2001:
Table 5: Effect of the Geographic Reclassification Budget Neutrality
Requirement on Medicare Inpatient Hospital Payments, by Metropolitan
and Nonmetropolitan Status, Fiscal Years 1995 through 2002:
Table 6: Hospital Wages, Adjusted for Mix of Occupations, Oakland MSA
and Nonmetropolitan California, Fiscal Year 1998:
Table 7: Effect of an Occupational Mix Adjustment on Average Area Wages
in California, Fiscal Year 1998:
Figures:
Figure 1: Geographic Reclassification Criteria, Wage Index
Reclassification for Individual Hospitals:
Figure 2: Geographic Reclassification Criteria for all Hospitals in an
Urban County:
Figure 3: Hospitals Reclassified for Medicare Payment, Fiscal Years
1993-2002:
Figure 4: Hospital Wages by County, Washington, D.C. Metropolitan
Statistical Area, Fiscal Year 1997:
Abbreviations:
BBRA: Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of
1999:
BIPA: Medicare, Medicaid, and SCHIP Benefits Improvement and Protection
Act of 2000:
CMS: Centers for Medicare & Medicaid Services:
DRG: diagnosis-related group:
HCFA: Health Care Financing Administration:
MGCRB: Medicare Geographic Classification Review Board:
MSA: metropolitan statistical area:
OBRA: Omnibus Budget Reconciliation Act:
OMB: Office of Management and Budget:
PPS: prospective payment system:
RN: registered nurse:
RRC: rural referral center:
RUCA: rural urban commuting area:
SCH: sole community hospital:
SCHIP: State Children‘s Health Insurance Program:
[End of section]
United States General Accounting Office:
Washington, DC 20548:
September 30, 2002:
Congressional Committees:
The Medicare program‘s prospective payment system (PPS) for inpatient
hospital services provides incentives for hospitals to operate
efficiently by paying them a predetermined, fixed amount for each
inpatient hospital stay regardless of the actual costs incurred in
providing the care. Although the fixed amount is based on national
average costs, actual per stay payments vary widely across hospitals,
primarily because of two payment adjustments in the PPS. One adjustment
accounts for cost differences across patients due to their care needs
and the other accounts for the substantial variation in labor costs
across the country. The fixed amount is adjusted for these two sources
of cost differences because they are largely beyond any individual
hospital‘s ability to control.
The labor cost adjustment is based on a wage index calculated for
specified geographic areas across the country. The wage index reflects
how average hospital wages in each geographic area compare to average
hospital wages nationally. [Footnote 1] The geographic areas are
intended to represent the separate labor markets in which hospitals
compete for employees. Each metropolitan area, as defined by the Office
of Management and Budget (OMB), is considered a single labor market,
and all areas outside of metropolitan areas in each state are treated
as a single labor market. All hospitals within a given geographic area
receive the same labor cost adjustment. Thus, Medicare‘s payment to a
hospital in an area with lower wages is below the national average
payment and the payment to a hospital in a higher wage area is above
the national average. In general, hospitals in nonmetropolitan areas
have lower wages than those in metropolitan areas and therefore have a
lower wage index and receive lower Medicare payments. Conversely,
hospitals in metropolitan areas tend to pay higher wages than hospitals
in nonmetropolitan areas and receive higher Medicare payments.
The labor cost adjustment has been criticized for failing to
appropriately adjust payments to reflect the average wages that some
hospitals pay. Some hospitals indicate that the wages they must pay are
higher than the average wages in their assigned geographic area because
they must compete for employees with hospitals in nearby, higher wage
areas. To address these concerns, the Congress in 1989 established an
administrative process for geographic reclassification, which allows
hospitals that meet criteria concerning their average wages and
proximity to a higher wage paying area to reclassify. [Footnote 2] A
reclassified hospital is paid based on the Medicare labor cost
adjustment of the higher wage area. In addition, certain specially
designated rural hospitals can reclassify to a higher wage area by
meeting less stringent criteria. The Congress required that the
reclassification policy be budget neutral, that is, not change total
Medicare outlays, so the increased payments to reclassified hospitals
are offset by an across-the-board reduction in payments to other
hospitals.
In the Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of
1999 (BBRA), [Footnote 3] the Congress directed us to evaluate
Medicare‘s labor cost adjustment policies. In consultation with the
committees of jurisdiction, we have examined (1) whether Medicare‘s
labor cost adjustment accounts appropriately for geographic variation
in average wages, (2) the extent to which reclassification addresses
potential problems with Medicare‘s labor cost adjustment, and (3) the
effect of the budget neutrality adjustment on hospitals that do not
reclassify, including the impact of altering the budget neutrality
adjustment so that payment increases to reclassified hospitals in a
state would be funded by payment reductions to hospitals within the
same state, rather than across all hospitals nationwide, as is done
now.
To address these issues, we used 1997 Medicare hospital cost reports
(the comprehensive financial document that hospitals submit annually to
receive payment from Medicare) to analyze hospital wage data, because
1997 wage data were used to calculate the 2001 wage indexes. [Footnote
4] We also analyzed more recent Medicare hospital cost report data, PPS
Payment Impact Files, and wage data in California Hospital Annual
Disclosure Reports submitted to the California Office of Statewide
Health Planning and Development. We also interviewed officials at the
Centers for Medicare & Medicaid Services (CMS); [Footnote 5] the
Medicare Geographic Classification Review Board (MGCRB), which reviews
and approves reclassification applications; and representatives of some
hospitals that have been reclassified. We did our work in accordance
with generally accepted government auditing standards from January 2000
through September 2002. A detailed discussion of our scope and
methodology is in appendix I.
Results in Brief:
The Medicare program‘s labor cost adjustment may not adequately account
for geographic differences in hospital wages because of problems with
the definition of labor markets. The geographic areas used by Medicare
to approximate hospital labor markets often encompass large areas in
which hospitals in different parts of an area or different types of
communities may pay widely varying wages. The patterns of wage
variation indicate that some of the geographic areas combine multiple
labor markets. Hospitals in some outlying counties of metropolitan areas
pay average wages that are lower than the average wage paid in the
entire area, yet the labor cost adjustment to their Medicare payments
is based on the entire area‘s average and reflects the higher wages of
hospitals in the central counties. In nonmetropolitan areas, hospitals
in large towns (with populations of 10,000 to 49,999 people) typically
pay higher wages than hospitals in small towns and rural communities.
Yet, the labor cost adjustment for large town hospitals is based on the
average wage of all nonmetropolitan hospitals in their state. As a
result, Medicare‘s labor cost adjustment for large town hospitals often
reflects a lower average wage than if the adjustment were based on the
average wages they pay.
Geographic reclassification does not systematically address inadequacies
in the way the Medicare program defines geographic areas, although it
allows some, but not all, hospitals that may be in a distinct labor
market and pay wages above the average in their area to receive a
higher labor cost adjustment. Hospitals in large towns that pay wages
that are so much higher than the average in their area that they
satisfy the reclassification wage criterion are likelier than such
higher wage hospitals in other community types to reclassify. This is
because many hospitals in large towns are specially designated rural
hospitals that can reclassify without satisfying the proximity
criterion that they be near an area with a higher labor cost
adjustment. Metropolitan hospitals with wages that are higher than
their area average are less likely to reclassify because they must
satisfy the proximity criterion and few are near another metropolitan
area with a higher labor cost adjustment. Conversely, a number of
hospitals reclassify, even though the wages they pay are not
significantly higher than the average in their geographic area.
Hospitals that reclassify without satisfying the wage criterion receive
a labor cost adjustment that is based on average wages that are higher
than what they actually pay. Reclassified hospitals that satisfy the
wage criterion tend to receive a labor cost adjustment that more
closely reflects the wages they actually pay than their labor cost
adjustment prior to reclassification.
Geographic reclassification reduces payments to hospitals that do not
reclassify because of the budget neutrality requirement, and the amount
of this reduction would vary across hospitals under a state-specific
budget neutrality approach depending on their location. In 2002,
payments to metropolitan hospitals that were not reclassified were
about 1 percent lower and payments to nonmetropolitan hospitals that
were not reclassified were about 0.6 percent lower because of geographic
reclassification. If the budget neutrality provision were calculated and
applied within individual states instead of nationally, the adjustment
would be smaller in those states in which hospitals did not benefit much
from reclassification and higher in states where a higher proportion of
hospitals reclassified. For example, our analysis indicates that a
state-specific adjustment in 2000 would have reduced payments to
hospitals that did not reclassify by almost 3 percent in New Hampshire,
where 4 out of its 26 hospitals reclassified, and hospitals in Nevada
would not have had their payments changed because no hospitals in that
state reclassified.
We recommend that the Administrator of CMS improve the adequacy of
the Medicare labor cost adjustment by refining the definitions of
Medicare geographic areas to more accurately reflect hospital labor
markets. In written comments to a draft of this report, CMS agreed that
there are problems with Medicare‘s current definitions of geographic
areas and it stated that there is no consensus on how to improve the
definitions.
Background:
Under the Medicare inpatient PPS, hospitals receive a fixed,
predetermined payment for each hospital stay. The payment is based on
standardized amounts that are calculated separately for hospitals in
large metropolitan areas (with populations of 1 million or more) and for
hospitals in smaller metropolitan and nonmetropolitan areas. The
standardized amounts are the average cost of hospital stays for Medicare
beneficiaries based on historical data and are updated annually for
inflation. [Footnote 6] For 2001, the standardized amount for hospitals
in large metropolitan areas was $4,028 and for hospitals in other areas
it was $3,965.
To determine a hospital‘s payment for a Medicare beneficiary‘s stay, the
standardized amount is adjusted to account for variation in the cost of
providing care to specific patients in specific locations. The labor
cost adjustment accounts for geographic variation in hospitals‘ labor
costs, because the wages hospitals must pay employees vary
significantly by area. [Footnote 7] The portion of the standardized
amount (71 percent) that reflects labor-related expenses is multiplied
by the area wage index. The remaining portion of the standardized
amount (29 percent) is not adjusted. [Footnote 8] This part of the
payment”which covers drugs, medical supplies, utilities, and other
nonlabor-related expenses”is uniform nationwide because prices for
these items are not perceived as varying significantly from area to
area. The case-mix adjustment accounts for differences in resource
requirements across types of patients. It is based on the expected care
needs of the patient as measured by the diagnosis-related group (DRG)
patient classification system. [Footnote 9]
Additional payments are made under PPS to compensate hospitals for
costs they incur in performing certain missions beyond caring for
individual patients. Teaching hospitals receive additional payments from
Medicare to account for costs associated with training medical
residents. Hospitals that serve a disproportionate share of low-income
Medicare and Medicaid patients also receive additional Medicare
payments. The combination of all these adjustments and additional
payments may result in widely varying per-stay payments across
different types of hospitals or geographic areas.
Wage Index:
The Medicare labor cost adjustment is based on a wage index that is
computed for each of 324 metropolitan and 49 statewide nonmetropolitan
areas using data that hospitals submit to Medicare. [Footnote 10] The
wage index for an area is the ratio of the average hourly hospital wage
in the area compared to the national average hourly hospital wage. The
average hourly wage is calculated for each area by aggregating Medicare-
allowable wages for all the hospitals in the area and then dividing
that sum by the corresponding staff hours. The area‘s average hourly
wage is then divided by the national average hourly wage to produce the
area‘s wage index. [Footnote 11] For example, if the average hourly
wage for all hospitals in a large metropolitan area was $22.59, the
wage index for that large metropolitan area would be $22.59 divided by
the national average hourly wage of $21.77, for a wage index of 1.04.
The wage indexes ranged from roughly 0.74 to 1.5 in 2001.
As currently calculated, the wage indexes vary because of geographic
differences in wages paid and also because of variation in the mix of
higher- and lower-skilled workers employed in an area, termed
occupational mix. An area‘s average hourly wage can be higher than the
national average if hospitals in an area employ more highly skilled
(and thus more highly paid) workers and lower if an area‘s hospitals
employ more lower-skilled workers than the national average. [Footnote
12] When one area‘s hospitals have a larger proportion of more skilled,
higher wage staff than another area, the former‘s wage index will be
higher, even if wage rates in both areas for staff with the same
skills, such as registered nurses, are identical. While geographic
differences in wages paid affect a hospital‘s labor costs but are
largely beyond an individual hospital‘s ability to control, the mix of
occupations employed in a hospital reflects managerial decisions. The
Congress, in the Medicare, Medicaid, and SCHIP Benefits Improvement and
Protection Act of 2000 (BIPA), [Footnote 13] required the Secretary of
Health and Human Services to collect data on hospitals‘ mix of
employees and their corresponding wages and calculate wage indexes
beginning October 1, 2004, that are adjusted for occupational mix. (For
a more detailed discussion of the impact of occupational mix variation
on the wage index, see app. II.)
Labor Market Areas:
The Medicare program uses OMB‘s ’metropolitan/nonmetropolitan“
classification system to define its geographic areas for the labor cost
adjustment. Each metropolitan statistical area (MSA) is defined as a
metropolitan labor market and the residual area in each state is
defined as a single, nonmetropolitan labor market. [Footnote 14] The
current geographic areas will most likely change when MSA boundaries
are updated in 2003 with population data from the most recent decennial
census and revised standards for selecting counties for inclusion in an
MSA. [Footnote 15]
Geographic Reclassification:
The Omnibus Budget Reconciliation Act of 1989 established an
administrative process for geographic reclassification, in which
hospitals meeting certain criteria can apply to be paid for Medicare
inpatient hospital services as if they were located in another
geographic area. Once reclassified, hospitals receive the higher labor
cost adjustment and, where applicable, the large urban standardized
amount. [Footnote 16]
To reclassify, a hospital must submit an application to the MGCRB, which
determines if the hospital meets the reclassification criteria (see
fig. 1). The two standard criteria that individual hospitals must meet
to reclassify for a higher wage index are intended to identify
hospitals that have higher average wages than other hospitals in their
area because they are competing for labor with hospitals in a different
nearby area. The first criterion concerns the hospital‘s proximity to
the higher wage ’target“ area. The proximity requirement is satisfied
if the hospital is within a specified number of miles of the target
area or if at least half of the hospital‘s employees reside in the
target area. The second criterion pertains to the hospital‘s wages
relative to the average wages in the target area. The wage criterion is
satisfied if the hospital‘s wages are a specified amount higher than
the average in its assigned area and its wages are comparable to the
average wages in the target area. Wage index reclassifications are
effective for 3 years. [Footnote 17]
Figure 1: Geographic Reclassification Criteria, Wage Index
Reclassification for Individual Hospitals:
[See PDF for image]
The following data is depicted in the figure:
For an individual hospital to be reclassified for its wage index, it
must meet the following criteria:
* Proximity criteria:
- An urban hospital can be no more than 15 miles, and a rural hospital
can be no more than 35 miles, from the area to which it seeks
reclassification, or;
- at least 50 percent of the hospital's employees reside in the target
area.
* Wage criteria:
- An urban hospital's average hourly wage (based on the hospital's 3
most recent years of wage data) must be at least 108 percent of the
hourly average wage of its home area and at least 84 percent of the
area to which it seeks reclassification;
- A rural hospital's average hourly wage (based on the hospital's 3
most recent years of wage data) must be at least 106 percent of the
hourly average wage of its home area and at least 82 percent of the
area to which it seeks reclassification.
Source: 42 CFR 412.230 (2001).
[End of figure]
All hospitals in an urban county can reclassify as a group if together
the hospitals meet certain criteria, as described in figure 2.
Figure 2: Geographic Reclassification Criteria for all Hospitals in an
Urban County:
[See PDF for image]
The following data is depicted in the figure:
For all hospitals in an urban county to be reclassified as a group for
both the standardized amount and wage index, they must meet the
following criteria:
* Adjacency criterion:
The county must be adjacent to the target MSA and the county must be in
the same Consolidated Metropolitan Statistical Area as the target MSA.
* Cost criterion:
The group's average cost per stay, adjusted for its mix of patients,
must be equal to or greater than it current average PPS payment plus 75
percent of the difference between that amount and the average amount it
would receive it if were reclassified; and the group's average hourly
wage must be at least 85 percent of the average wage in the target
area.
Source: 42 CFR 412.234 (2001).
[End of figure]
Rural referral centers (RRC) and sole community hospitals (SCH) can
reclassify by meeting less stringent criteria. These hospitals receive
special treatment from Medicare because of their role in preserving
access to care for beneficiaries in specified areas. RRCs are
relatively large rural hospitals providing an array of services and
treating patients from a wide geographic area. SCHs are small hospitals
isolated from other hospitals by location, weather, or travel
conditions. [Footnote 18] RRCs and SCHs do not have to meet the
proximity criteria to reclassify. RRCs are also exempt from the
requirement that their wages be higher than the average wages in their
original area. Hospitals that have lost their RRC designation can
continue to reclassify under these less stringent criteria.
In 1992, the first year of reclassifications, 930 hospitals were
reclassified under less restrictive criteria than those currently used.
More than 75 percent of these hospitals were in nonmetropolitan areas.
In the following year, almost 1,200 hospitals were reclassified (of
which 69 percent were in nonmetropolitan areas). For 1994, HCFA
established more restrictive criteria and the number of reclassified
hospitals subsequently dropped by approximately 44 percent, to 667 (see
fig. 3). From 1995 to 2002, wage index reclassifications became more
predominant, increasing by an average of 6 percent annually, while
standardized amount reclassifications fell by almost one-quarter. For
2002, 511 nonmetropolitan hospitals and 117 metropolitan hospitals were
reclassified for Medicare payment purposes. Individual hospitals have
also been reclassified through legislation. Recently, the BBRA
reclassified all hospitals in 7 counties (this totaled 26 hospitals)
for purposes of the wage index and the standardized amount. [Footnote
19]
Figure 3: Hospitals Reclassified for Medicare Payment, Fiscal Years
1993-2002:
[See PDF for image]
This figure is a vertical stacked bar graph, depicting the following
data:
Fiscal year: 1993;
Number of hospitals approved for wage index only: 879;
Number of hospitals approved for standardized amount only: 97;
Number of hospitals approved for both wage index and standardized
amount: 215;
Total: 1191.
Fiscal year: 1994;
Number of hospitals approved for wage index only: 236;
Number of hospitals approved for standardized amount only: 259;
Number of hospitals approved for both wage index and standardized
amount: 172;
Total: 667.
Fiscal year: 1995;
Number of hospitals approved for wage index only: 207;
Number of hospitals approved for standardized amount only: 285;
Number of hospitals approved for both wage index and standardized
amount: 192;
Total: 684.
Fiscal year: 1996;
Number of hospitals approved for wage index only: 258;
Number of hospitals approved for standardized amount only: 210;
Number of hospitals approved for both wage index and standardized
amount: 134;
Total: 602.
Fiscal year: 1997;
Number of hospitals approved for wage index only: 271;
Number of hospitals approved for standardized amount only: 119;
Number of hospitals approved for both wage index and standardized
amount: 86;
Total: 476.
Fiscal year: 1998;
Number of hospitals approved for wage index only: 281;
Number of hospitals approved for standardized amount only: 93;
Number of hospitals approved for both wage index and standardized
amount: 47;
Total: 421.
Fiscal year: 1999;
Number of hospitals approved for wage index only: 353;
Number of hospitals approved for standardized amount only: 80;
Number of hospitals approved for both wage index and standardized
amount: 50;
Total: 483.
Fiscal year: 2000;
Number of hospitals approved for wage index only: 385;
Number of hospitals approved for standardized amount only: 66;
Number of hospitals approved for both wage index and standardized
amount: 46;
Total: 497.
Fiscal year: 2001;
Number of hospitals approved for wage index only: 392;
Number of hospitals approved for standardized amount only: 73;
Number of hospitals approved for both wage index and standardized
amount: 58;
Total: 523.
Fiscal year: 2002;
Number of hospitals approved for wage index only: 555;
Number of hospitals approved for standardized amount only: 30;
Number of hospitals approved for both wage index and standardized
amount: 43;
Total: 628.
Source: PPS Payment Impact Files, fiscal years 1993-2002.
[End of figure]
Medicare Labor Cost Adjustment Does Not Adequately Account for Wage
Differences within Certain Areas:
The geographic areas that Medicare uses for the labor cost adjustment
include hospitals that pay wages that may be quite different from the
average wage in the entire geographic area. Hospital wages within some
Medicare geographic areas”either MSAs or states‘ nonmetropolitan
areas”vary systematically across certain parts of the area or across
types of communities. While wages paid by individual hospitals within a
labor market may vary, the observed systematic variation suggests that
some Medicare geographic areas include multiple labor markets. For
example, the average wages of the hospitals in outlying counties of
metropolitan areas usually are lower than the average wages for the
entire metropolitan area‘s hospitals. As a result, the labor cost
adjustment for hospitals in outlying counties of metropolitan areas is
based on an average wage that is often higher than the wages paid by
these hospitals. In contrast, the average wages paid by hospitals in
large towns (nonmetropolitan communities with between 10,000 and 49,999
people) tend to be significantly higher than the average wage of all
hospitals in nonmetropolitan areas in the state.
Medicare Metropolitan Geographic Areas May Encompass Multiple Labor
Markets with Varying Average Wages:
Some MSAs are very large, encompassing a diverse mix of counties. Given
the broad expanse of many large MSAs, the hospitals in the different
parts of an MSA may not be directly competing with each other for the
same pool of employees, and the wages they pay can vary greatly. The
most populous MSAs typically cover a region of several thousand square
miles (see table 1). Distances between points within an MSA can exceed
100 miles. For example, the Chicago MSA includes 8 counties and 5,065
square miles, and the distance from its northernmost to southernmost
point is roughly 110 miles. Hospitals in central counties of an MSA
typically paid higher wages than hospitals in outlying counties. In the
most populous MSAs, average central county hospital wages ranged from 7
percent higher than outlying county wages in Houston to 38 percent
higher in New York in 1997. In most of these MSAs, the average wage
difference between central and outlying counties ranged from 11 to 18
percent. [Footnote 20]
Table 1: Hospital Wage Variation in the Most Populous Metropolitan
Statistical Areas, Fiscal Year 1997:
MSA: Los Angeles-Long Beach, CA;
Counties: 1;
Square miles: 4,060;
Hospitals: 104;
Average hourly hospital wage within MSA Central counties: $26.12;
Average hourly hospital wage within MSA Outlying counties: N/A;
Average hourly hospital wage within MSA All counties in MSA: $26.12;
Range of hospital wages within MSA[A]: $20.09-29.84.
MSA: New York, NY;
Counties: 8;
Square miles: 1,141;
Hospitals: 74;
Average hourly hospital wage within MSA Central counties: $31.93;
Average hourly hospital wage within MSA Outlying counties: $23.15;
Average hourly hospital wage within MSA All counties in MSA: $31.86;
Range of hospital wages within MSA[A]: $24.84-35.80.
MSA: Chicago, IL;
Counties: 9;
Square miles: 5,065;
Hospitals: 84;
Average hourly hospital wage within MSA Central counties: $24.30;
Average hourly hospital wage within MSA Outlying counties: $20.77;
Average hourly hospital wage within MSA All counties in MSA: $24.27;
Range of hospital wages within MSA[A]: $20.17-26.56.
MSA: Philadelphia, PA-NJ;
Counties: 9;
Square miles: 3,856;
Hospitals: 62;
Average hourly hospital wage within MSA Central counties: $23.82;
Average hourly hospital wage within MSA Outlying counties: $23.15;
Average hourly hospital wage within MSA All counties in MSA: $23.81;
Range of hospital wages within MSA[A]: $19.72-26.46.
MSA: Washington, DC-MD-VA-WV;
Counties: 18;
Square miles: 6,465;
Hospitals: 40;
Average hourly hospital wage within MSA Central counties: $23.70;
Average hourly hospital wage within MSA Outlying counties: $20.14;
Average hourly hospital wage within MSA All counties in MSA: $23.41;
Range of hospital wages within MSA[A]: $19.66-25.72.
MSA: Detroit, MI;
Counties: 6;
Square miles: 3,896;
Hospitals: 48;
Average hourly hospital wage within MSA Central counties: $22.92;
Average hourly hospital wage within MSA Outlying counties: $20.57;
Average hourly hospital wage within MSA All counties in MSA: $22.88;
Range of hospital wages within MSA[A]: $18.90-24.50.
MSA: Houston, TX;
Counties: 6;
Square miles: 5,921;
Hospitals: 43;
Average hourly hospital wage within MSA Central counties: $21.23;
Average hourly hospital wage within MSA Outlying counties: $19.83;
Average hourly hospital wage within MSA All counties in MSA: $21.19;
Range of hospital wages within MSA[A]: $16.75-23.18.
MSA: Atlanta, GA;
Counties: 20;
Square miles: 6,126;
Hospitals: 42;
Average hourly hospital wage within MSA Central counties: $22.40;
Average hourly hospital wage within MSA Outlying counties: $19.66;
Average hourly hospital wage within MSA All counties in MSA: $21.98;
Range of hospital wages within MSA[A]: $18.36-23.97.
MSA: Boston, MA-NH;
Counties: N/A[B];
Square miles: 7,384;
Hospitals: 76;
Average hourly hospital wage within MSA Central counties: N/A;
Average hourly hospital wage within MSA Outlying counties: N/A;
Average hourly hospital wage within MSA All counties in MSA: $24.30;
Range of hospital wages within MSA[A]: $19.88-26.17.
MSA: Dallas, TX;
Counties: 8;
Square miles: 6,186;
Hospitals: 36;
Average hourly hospital wage within MSA Central counties: $21.75;
Average hourly hospital wage within MSA Outlying counties: $18.98;
Average hourly hospital wage within MSA All counties in MSA: $21.58;
Range of hospital wages within MSA[A]: $18.85-24.80.
Note: N/A means not applicable.
[A] The range excludes wages that are in the top 10 percent and the
bottom 10 percent of the distribution of wages reported in the MSA.
[B] The Boston MSA is comprised of cities and towns rather than
counties.
Source: GAO analysis of 1997 hospital wages used in construction of the
2001 wage index, as reported in Medicare hospital cost reports and
county-level data from the US Census Bureau [hyperlink,
http://www.census.gov/population/estimates/metro-city/99mfips.txt]
downloaded June, 2002 and the National Association of Counties.
[End of table]
The Washington, D.C. MSA illustrates how hospital wages in a large MSA
can vary across different counties (see fig. 4). It includes hospitals
located in the central city of the District of Columbia, as well as 18
counties in Maryland, Virginia, and West Virginia. Hospital wages
averaged more than $23 per hour in 1997 in the District of Columbia and
in most of the adjacent suburban Maryland and Virginia counties, but
averaged below $20 per hour in several outlying counties.
Figure 4: Hospital Wages by County, Washington, D.C. Metropolitan
Statistical Area, Fiscal Year 1997:
[See PDF for image]
This figure is a map of the Washington, D.C. Metropolitan Statistical
Area. The following data is depicted:
Hospital Wages by county:
Category 1: Over $23 per hour:
Montgomery, MD;
Washington, DC;
Fairfax, VA;
Arlington, VA.
Hospital Wages by county:
Category 2: $20-23 per hour:
Prince George's, MD;
Charles, MD;
Frederick, MD;
Loudoun, VA;
Prince William; VA;
Fauquier, VA;
Warren, VA;
Spotsylvania, VA.
Hospital Wages by county:
Category 3: Less than $20 per hour:
Berkeley, WV;
Jefferson, WV;
Calvert, MD;
Culpeper, VA.
Hospital Wages by county:
Category 4: No hospital:
Stafford, VA;
King George, VA.
Source: GAO analysis of 1997 hospital wages used in construction of
2001 wage index, as reported in Medicare hospital cost reports.
[End of figure]
One reason MSAs are so large is because they are composed of counties,
which can also be quite expansive. As with MSAs, an individual county
may subsume multiple labor markets within its boundaries. As an
example, San Bernardino County, California extends over 150 miles”from
the city limits of San Bernardino through the Mojave Desert to the
Nevada border. While most of the population is concentrated in the
southwest corner of the county, which includes the city of San
Bernardino, even the sparsely populated desert and mountainous portions
of the county are part of the MSA. As a result, a hospital in the
desert community of Joshua Tree, California, receives the same labor
cost adjustment as hospitals in the city of San Bernardino 70 miles
away, even though hospital wages averaged $20.84 per hour in 1997 in
Joshua Tree, 13 percent less than average wages paid in San Bernardino.
Some Medicare Nonmetropolitan Geographic Areas Encompass Multiple
Community Types with Varying Wages:
The Medicare program groups hospitals in nonmetropolitan areas of each
state into a single geographic area for the purposes of the labor cost
adjustment. Given their vast size, each statewide nonmetropolitan area
is not perceived to be a single labor market, but the same labor cost
adjustment is applied to hospitals in these areas. However, there are
significant differences in average wages across parts of these areas.
For example, for all hospitals in the nonmetropolitan area of
Washington state, Medicare payments for 2001 were adjusted based on an
average wage of $22.71 per hour. Yet, nonmetropolitan hospitals in the
western part of the state had average wages of $24.23 per hour. Wages
for nonmetropolitan hospitals in the central and eastern parts of the
state, however, averaged $21.15 per hour, or 13 percent lower than
hospitals in the western part of the state.
Other variation in average wages across the statewide nonmetropolitan
areas is associated with the type of community. In three-quarters of all
states, the average wages paid by hospitals in large towns are higher
than those paid by hospitals in small towns or rural areas. As a
result, the Medicare labor cost adjustment may be based on average
wages that are below those paid by large town hospitals and above those
paid by hospitals in small towns and rural areas. For example, the 2001
labor cost adjustment for hospitals in nonmetropolitan Nebraska was
based on an average hourly wage of $17.65; yet, Nebraska hospitals in
large towns paid an average wage of $19.54. At the same time, small
town Nebraska hospitals paid an average of $16.83 and hospitals in
rural areas paid an average of $14.87, or 5 and 16 percent lower,
respectively, than the area average (see table 2). In 2001, 38 percent
of hospitals in large towns paid wages that were at least 5 percent
higher than the average wage in their area; 16 percent paid wages that
were at least 10 percent higher than the area average. [Footnote 21]
Table 2: Average Hospital Wages across Nonmetropolitan Areas in
Selected States, Fiscal Year 1997:
Nebraska:
Number of hospitals, Large town: 11;
Number of hospitals, Small town: 32;
Number of hospitals, Rural area: 32;
Statewide nonmetropolitan average hourly wage: $17.65;
Average hourly wage for nonmetropolitan subgroups, Large town: $19.54;
Average hourly wage for nonmetropolitan subgroups, Small town: $16.83;
Average hourly wage for nonmetropolitan subgroups, Rural area: $14.87.
Iowa:
Number of hospitals, Large town: 15;
Number of hospitals, Small town: 54;
Number of hospitals, Rural area: 24;
Statewide nonmetropolitan average hourly wage: $17.48;
Average hourly wage for nonmetropolitan subgroups, Large town: $18.81;
Average hourly wage for nonmetropolitan subgroups, Small town: $16.74;
Average hourly wage for nonmetropolitan subgroups, Rural area: $15.38.
Arizona:
Number of hospitals, Large town: 6;
Number of hospitals, Small town: 8;
Number of hospitals, Rural area: 2;
Statewide nonmetropolitan average hourly wage: $18.11;
Average hourly wage for nonmetropolitan subgroups, Large town: $19.14;
Average hourly wage for nonmetropolitan subgroups, Small town: $17.00;
Average hourly wage for nonmetropolitan subgroups, Rural area: $16.59.
Georgia:
Number of hospitals, Large town: 23;
Number of hospitals, Small town: 44;
Number of hospitals, Rural area: 18;
Statewide nonmetropolitan average hourly wage: $18.13;
Average hourly wage for nonmetropolitan subgroups, Large town: $18.88;
Average hourly wage for nonmetropolitan subgroups, Small town: $16.61;
Average hourly wage for nonmetropolitan subgroups, Rural area: $17.37.
Washington:
Number of hospitals, Large town: 17;
Number of hospitals, Small town: 8;
Number of hospitals, Rural area: 15;
Statewide nonmetropolitan average hourly wage: $22.71;
Average hourly wage for nonmetropolitan subgroups, Large town: $23.51;
Average hourly wage for nonmetropolitan subgroups, Small town: $21.72;
Average hourly wage for nonmetropolitan subgroups, Rural area: $19.19.
Note: Large towns have a population of 10,000 to 49,999, small towns a
population of 2,500 to 9,999, and rural areas have populations under
2,500.
Source: GAO analysis of 1997 hospital wages used in construction of
2001 wage index, as reported in Medicare hospital cost reports.
[End of table]
Through Reclassification, Some Hospitals Receive a More Appropriate
Labor Cost Adjustment:
While reclassification results in more appropriate labor cost
adjustments for some higher wage hospitals, the reclassification
criteria prevent some of them from reclassifying and exceptions to the
criteria allow some lower wage hospitals to do so. In 2001, 419
hospitals, less than 10 percent of all hospitals, reclassified to
receive a larger labor cost adjustment. Most of these hospitals had
average wages that were above their area‘s average by enough to meet
the standard reclassification wage criterion. [Footnote 22] Higher wage
hospitals in large towns are likelier to reclassify than higher wage
hospitals in other community types because many of them are RRCs, which
are exempt from the reclassification proximity criterion. Other higher
wage hospitals in large towns and many higher wage hospitals in
metropolitan areas, small towns, and rural areas cannot reclassify.
About one-quarter of hospitals that reclassified had wages that were
not high enough to satisfy the standard reclassification wage
criterion. These were primarily RRCs. Generally, hospitals that
reclassify but do not satisfy the standard wage criterion receive a
post-reclassification labor cost adjustment that reflects average wage
levels much higher than the wages they actually pay. For hospitals that
meet the standard wage criterion, however, reclassification results in
an adjustment that better matches their actual labor costs than did
their original one.
Not All Higher Wage Hospitals Can Reclassify:
Of the 756 hospitals that paid wages sufficiently higher than their area
average wage to meet the reclassification wage criteria, 310 (41
percent) were reclassified in 2001 (see table 3). Hospitals that met
the wage criteria, but did not satisfy the proximity criterion, did not
reclassify. Just over one-quarter of the higher wage hospitals were in
large towns, yet large town hospitals made up almost half of the higher
wage hospitals that reclassified. Metropolitan hospitals made up 42
percent of the higher wage hospitals, but comprised only 12 percent of
the higher wage reclassified hospitals. Higher wage hospitals in large
towns are likelier to reclassify than other higher wage hospitals
because many are RRCs, and so are exempt from the proximity criterion.
Table 3: Reclassified Hospitals by Wage Level and Community Type,
Fiscal Year 2001:
Higher wage hospitals, Total:
Metropolitan: 317;
Nonmetropolitan, Large town: 203;
Nonmetropolitan, Small town: 168;
Nonmetropolitan, Rural: 68;
All: 756.
Higher wage hospitals, Reclassified:
Metropolitan: 38;
Nonmetropolitan, Large town: 149;
Nonmetropolitan, Small town: 92;
Nonmetropolitan, Rural: 31;
All: 310.
Higher wage hospitals, Percent reclassified;
Metropolitan: 12%;
Nonmetropolitan, Large town: 73%;
Nonmetropolitan, Small town: 55%;
Nonmetropolitan, Rural: 46%;
All: 41%.
Non-higher wage hospitals, Total:
Metropolitan: 2,407;
Nonmetropolitan, Large town: 386;
Nonmetropolitan, Small town: 819;
Nonmetropolitan, Rural: 478;
All: 4,090.
Non-higher wage hospitals, Reclassified:
Metropolitan: 11;
Nonmetropolitan, Large town: 75;
Nonmetropolitan, Small town: 21;
Nonmetropolitan, Rural: 2;
All: 109.
Non-higher wage hospitals, Percent reclassified:
Metropolitan: .5%;
Nonmetropolitan, Large town: 19%;
Nonmetropolitan, Small town: 3%;
Nonmetropolitan, Rural: .4%;
All: 3%.
Note: Higher wage hospitals are those that have wages high enough
relative to other hospitals in their geographic area to meet the
standard reclassification criterion, which for metropolitan hospitals is
average wages at least 8 percent higher than the average in their
geographic area, and for nonmetropolitan hospitals is average wages at
least 6 percent higher than the average in their area. Large town,
small town, and rural areas were defined using rural urban commuting
area (RUCA) codes rather than location in a Medicare nonmetropolitan
geographic area. Some nonmetropolitan hospitals were defined by RUCA
codes as being urban based on their high levels of commuting to
urban areas.
Source: GAO analysis of 1997 hospital wages used in construction of
2001 wage index, as reported in Medicare hospital cost reports and 2001
PPS Payment Impact File. Analysis excludes hospitals reclassified
through legislation, hospitals that receive only a standardized amount
reclassification, hospitals with missing wage data, and nonmetropolitan
hospitals that were defined by RUCA codes as urban.
[End of table]
Close to half of the higher wage hospitals in small towns and rural
areas reclassify. Almost 39 percent of the reclassified higher wage
small town and rural hospitals were exempt from the proximity criterion
because they were RRCs or SCHs. Some nonreclassified, higher wage small
town or rural hospitals that were SCHs may have opted out of the PPS to
receive cost-based payments from Medicare, making reclassification
irrelevant. [Footnote 23]
In 2001, only 38 of the 317 metropolitan hospitals with wages that were
at least 8 percent higher than the average for their area, thus
satisfying the standard wage criteria, reclassified to receive a higher
labor cost adjustment. Nearly two-thirds of all reclassified
metropolitan hospitals were in two areas”California and the northeast.
[Footnote 24] Metropolitan areas in these two regions are contiguous,
so higher wage hospitals may be more likely than hospitals in other
areas to satisfy the proximity criterion. [Footnote 25]
Certain Hospitals Can Reclassify without Meeting the Standard Wage
Criterion:
In 2001, 109 (about 25 percent) of all hospitals that reclassified for
the Medicare labor cost adjustment paid wages that were too low to meet
the standard wage criterion for reclassification. Of these, 89 were
RRCs. Roughly 42 percent of these RRCs that reclassified had wage costs
below the average in their area. Some of the hospitals that were
reclassified in 2001 but that did not satisfy the standard wage
criterion were part of countywide reclassifications. Others had been
reclassified via legislation.
Reclassified Hospitals That Did Not Satisfy the Standard Wage Criterion
Likely Receive a Labor Cost Adjustment Higher than the Wages They Pay:
The relationship between a hospital‘s wages and the average in its
geographic area, before and after reclassification, depends on whether
it was in a metropolitan or nonmetropolitan area and whether it
satisfied the standard reclassification wage criterion (see table 4).
Reclassification resulted in higher wage hospitals receiving a labor
cost adjustment that more closely reflects the wages they actually
paid. For example, prior to their reclassification, the higher wage
metropolitan hospitals received a labor cost adjustment based on wages
in their original area that averaged 10 percent lower than their own
wages. After reclassification, the average wages paid by these
hospitals did not differ from the average wages paid by the other
hospitals in their area. Higher wage nonmetropolitan hospitals that
reclassified joined areas with average wages about 4 percent higher
than their own average wages. Before reclassification, the higher wage
nonmetropolitan hospitals would have received a labor cost adjustment
based on average wages that were much lower than what they actually
paid.
In contrast, reclassification resulted in hospitals that did not
satisfy the standard wage criterion joining areas that, on average, had
much higher average wages. Prior to reclassification, nonmetropolitan
hospitals that did not satisfy the standard wage criterion paid wages
near the average of their area. After reclassification, they received a
labor cost adjustment based on wages that averaged 8 percent above
their own average wages.
Table 4: Area Average Wage Compared to Hospital Wage, before and after
Reclassification, Fiscal Year 2001:
Category of hospital:
Metropolitan, Reclassified – higher wage;
Difference between area average wage and hospital-specific wage, Before
reclassification (percent): -10%;
Difference between area average wage and hospital-specific wage, After
reclassification (percent): 0%.
Category of hospital:
Metropolitan, Nonreclassified – higher wage;
Difference between area average wage and hospital-specific wage, Before
reclassification (percent): 7%;
Difference between area average wage and hospital-specific wage, After
reclassification (percent): N/A.
Category of hospital:
Nonmetropolitan, Reclassified – higher wage;
Difference between area average wage and hospital-specific wage, Before
reclassification (percent): 9%;
Difference between area average wage and hospital-specific wage, After
reclassification (percent): 4%.
Category of hospital:
Nonmetropolitan, Reclassified – non-higher wage;
Difference between area average wage and hospital-specific wage, Before
reclassification (percent): -1%;
Difference between area average wage and hospital-specific wage, After
reclassification (percent): 8%.
Category of hospital:
Nonmetropolitan, Nonreclassified – higher wage;
Difference between area average wage and hospital-specific wage, Before
reclassification (percent): -4%;
Difference between area average wage and hospital-specific wage, After
reclassification (percent): N/A.
Note: N/A means not applicable. Higher wage hospitals are those that
have wages high enough relative to other hospitals in their geographic
area to meet the reclassification criterion, which for metropolitan
hospitals is average wages at least 8 percent higher than the average
in their geographic area, and for nonmetropolitan hospitals is average
wages at least 6 percent higher than the average in their area. Non-
higher wage hospitals are those that cannot satisfy the reclassification
wage criterion.
Source: GAO analysis of 1997 hospital wages used in construction of
2001 wage index, as reported in Medicare hospital cost reports and 2001
PPS Payment Impact File. Analysis excludes hospitals reclassified
through legislation, hospitals that receive only a standardized amount
reclassification, and hospitals with missing wage data.
[End of table]
Budget Neutrality Adjustments Are Relatively Modest, but Would Vary
under a State-Specific Option:
While geographic reclassification increases the labor cost adjustment,
and thus Medicare payments, to hospitals that reclassify, it does not
raise total Medicare outlays because any payment increases must be
offset by an across-the-board reduction to Medicare payments for all
hospitals. In 2002, this budget neutrality adjustment reduced Medicare
payments to nonreclassified metropolitan hospitals by about 1 percent
and to nonreclassified nonmetropolitan hospitals by about 0.6 percent.
If the budget neutrality adjustment were calculated and applied on a
state-specific basis, the payment reductions would be different in each
state. A state-specific budget neutrality adjustment would reduce
payments more in some states and less in other states than the national
adjustment. In states in which overall Medicare hospital payments
increase more than the national average increase due to
reclassification, a state-specific option would result in a bigger
payment reduction. A state-specific adjustment would reduce payments
less in states in which hospitals do not benefit as much from
geographic reclassification as the average. Hospital payments would not
be reduced in states that have no reclassified hospitals under a state-
specific budget neutrality option.
Budget Neutrality Adjustment Calculated to Offset Payment Increases to
Reclassified Hospitals:
To meet the budget neutrality requirement, CMS annually calculates the
increase in Medicare payments to reclassified hospitals. This increase
is due to the use of a higher wage index or standardized amount, or
both. CMS then calculates how much the standardized amount”the fixed,
predetermined hospital payment”needs to be reduced so that total
Medicare outlays for hospital services do not change because of
reclassification.
In 2002, Medicare payments to nonreclassified metropolitan hospitals
were about 1 percent lower due to the budget neutrality provision than
they would have been in the absence of any geographic reclassifications
(see table 5). Payments to nonreclassified nonmetropolitan hospitals
were about 0.6 percent lower. The effect of the budget neutrality
adjustment on hospital payments varies annually depending on how much
Medicare payments are increased due to hospitals being reclassified,
compared to total Medicare payments to all hospitals. The budget
neutrality adjustment will be higher in those years where reclassified
hospitals account for a greater share of Medicare payments.
Table 5: Effect of the Geographic Reclassification Budget Neutrality
Requirement on Medicare Inpatient Hospital Payments, by Metropolitan
and Nonmetropolitan Status, Fiscal Years 1995 through 2002 (Percent
change in per stay payments):
Metropolitan, Reclassified;
1995: 2.4;
1996: 2.6;
1997: 3.3;
1998: 3.2;
1999: 4.8;
2000: 4.1;
2001: 5.4;
2002: 4.2.
Metropolitan, Nonreclassified;
1995: -0.6;
1996: -0.6;
1997: -0.6;
1998: -0.5;
1999: -0.6;
2000: -0.6;
2001: -0.7;
2002: -1.0.
Nonmetropolitan, Reclassified;
1995: 7.4;
1996: 7.4;
1997: 8.6;
1998: 8.7;
1999: 7.0;
2000: 6.5;
2001: 5.9;
2002: 5.5.
Nonmetropolitan, Nonreclassified;
1995: -0.4;
1996: -0.4;
1997: -0.4;
1998: -0.4;
1999: -0.4;
2000: -0.4;
2001: -0.5;
2002: -0.6.
Source: Impact Analysis Tables from final PPS rules, published in the
Federal Register, 1995-2001.
[End of table]
Effect of State-Specific Budget Neutrality Adjustment Would Depend on
Benefits of Reclassification for State‘s Hospitals:
A state-specific adjustment would reduce payments less than a national
adjustment in states where reclassified hospitals account for a smaller
share of the state‘s Medicare inpatient hospital spending than the
national average. For example, in Colorado, where 3 of 64 hospitals were
reclassified in 2000, a state-specific budget neutrality adjustment
would have reduced hospital payments by only 0.07 percent, compared to
a 0.6 percent reduction under the national budget neutrality
calculation. [Footnote 26] For the states that have no hospitals
reclassifying, such as Nevada, there would be no budget neutrality
adjustment under a state-specific approach.
Conversely, a state-specific adjustment would reduce Medicare payments
more than a national one in states where reclassified hospitals account
for a larger share of Medicare inpatient hospital spending than the
national average. In New Hampshire, for example, where a large share of
the state‘s hospitals was reclassified (4 of 26 hospitals) a state-
specific adjustment would have reduced payments to nonreclassified
hospitals by nearly 3 percent, compared to a 0.6 percent reduction
under the national adjustment. [Footnote 27]
Conclusions:
Medicare‘s PPS for inpatient services provides incentives to hospitals
to deliver care efficiently by allowing them to keep any difference
between their Medicare payments and their costs, and by making them
responsible for their costs that exceed Medicare payments. To ensure
that the PPS rewards efficiency rather than hospitals‘ circumstances,
payment adjustments are intended to account for cost differences across
hospitals that are beyond the control of individual facilities. If
these cost differences are not adequately accounted for by the payment
adjustments, hospitals are inappropriately rewarded or put under fiscal
pressure. The adjustment used to account for geographic differences in
wages”the labor cost adjustment”does not adequately account for these
cost differences because the geographic areas used to define labor
markets are too large in many instances. As a result, refinements are
needed to address systematic problems in defining hospital labor
markets. Such changes could improve payment accuracy and reduce the
need for geographic reclassification by grouping hospitals into areas
with average wages that better match their own wages.
RRCs and certain other specially designated hospitals have easier access
to a higher labor cost adjustment because they are allowed to reclassify
under less stringent criteria than other hospitals. These hospitals may
face higher costs than other hospitals, but they do not necessarily
have labor costs that are higher than the average in their geographic
area. Reclassification potentially offers some financial relief to a
share of these facilities, but it does not address the problem
underlying their financial circumstances or assist all such facilities.
Identifying the underlying cause of their higher costs is important to
develop mechanisms to address their financial circumstances.
Recommendations for Executive Action:
To improve the adequacy of Medicare‘s labor cost adjustments, we
recommend that the Administrator of CMS refine the geographic areas
used to more accurately reflect the labor markets in which hospitals
compete for employees and the geographic variation in hospitals‘ labor
costs. This could include separating large towns in a state into their
own labor market area and removing certain outlying counties in MSAs
from the metropolitan geographic area if they exhibit wage costs that
are significantly different from the rest of the metropolitan area.
Agency Comments and Our Evaluation:
In its written comments on a draft of this report (see app. VI), CMS
stated that it agreed with the problems we identified with the current
labor market areas. CMS stated that it had conducted its own analyses of
alternative approaches to defining geographic areas and consulted with
hospital representatives and concluded that there is no consensus on an
alternative to Medicare‘s current geographic areas. CMS stated that it
will consider whether changes in MSA definitions based on new census
figures should be used for refining the geographic areas. CMS noted
that a state-specific budget neutrality approach, which we were
required to assess, would require statutory change and could make
reclassifications within states highly contentious.
We believe that Medicare‘s current geographic areas could be refined to
better reflect variation in area labor costs. While forthcoming changes
to MSA definitions are important to consider in refining Medicare‘s
geographic areas, these changes are unlikely to improve the labor cost
adjustment in most large towns. We recognize that consensus on any
changes to the geographic areas would be difficult to achieve because
any change would redistribute Medicare payments across hospitals so that
hospital payments would increase in some areas and decrease in others.
Yet, because the refinements would result in Medicare payments that
better match the costs that hospitals face, they would strengthen the
incentives of the PPS that encourage hospital efficiency and improve
Medicare‘s payment method. CMS also provided technical comments,
which we incorporated as appropriate.
We are sending copies of this report to the Administrator of CMS and
interested congressional committees. We will also make copies available
to others upon request. In addition, this report will be available at no
charge on the GAO Web site at [hyperlink, http://www.gao.gov].
If you have any other questions about this report, please call me at
(202) 512-7119. Jean Chung, James Mathews, Michael Rose, and Kara Sokol
made key contributions to this report.
Signed by:
Laura A. Dummit:
Director, Health Care”Medicare Payment Issues:
List of Committees:
The Honorable Max Baucus:
Chairman:
The Honorable Charles E. Grassley, Jr.
Ranking Minority Member:
Committee on Finance:
United States Senate:
The Honorable Bill Thomas:
Chairman:
The Honorable Charles B. Rangel:
Ranking Minority Member:
Committee on Ways and Means:
House of Representatives:
The Honorable W.J. ’Billy“ Tauzin:
Chairman:
The Honorable John D. Dingell:
Ranking Minority Member:
Committee on Energy and Commerce:
House of Representatives:
[End of section]
Appendix I: Scope and Methodology:
To conduct this work, we recreated the 2001 labor cost adjustment for
each hospital in the country prior to any reclassifications, using
aggregated wage and hour data reported on 1997 Medicare hospital cost
reports. We used data on reclassifications and hospital characteristics
from the PPS Payment Impact Files created each year by CMS. Information
on metropolitan areas, such as central and outlying counties and the
criteria by which counties are included in an MSA, was obtained from
the U.S. Census Bureau Web site as well as interviews with Census
Bureau staff.
We used RUCA codes, developed at the Washington, Wyoming, Alaska,
Montana, & Idaho (WWAMI) Rural Health Research Center at the University
of Washington, to examine segments of nonmetropolitan areas. We
assigned 1 of 30 possible RUCA codes to each hospital based on its
census tract. These 30 codes were then collapsed into 4 categories:
urban, large town, small town, and rural.
We calculated dollar-weighted average hourly hospital wages for each of
the nonmetropolitan categories, nationally and by state, by dividing
aggregate wages for all hospitals within a category by aggregate hours.
We then compared the average hourly hospital wage for each
nonmetropolitan subgroup within a state to the statewide
nonmetropolitan average hourly wage.
To evaluate the potential payment impact of applying a geographic
reclassification budget-neutrality factor on a state-specific basis, we
used the 2000 PPS Payment Impact File to calculate the Medicare
payments to all hospitals within each state, before and after any
geographic reclassifications. We then used the difference between pre-
and post-reclassification payments to calculate a budget neutrality
factor for each state. These budget neutrality factors were then used
to estimate how payments to reclassified and nonreclassified hospitals
in each state would differ under a state-specific budget neutrality
adjustment, compared to the current national adjustment.
[End of section]
Appendix II: The Effect of Accounting for Occupational Mix on the Wage
Index:
In BIPA, the Congress required the Secretary of Health and Human
Services to collect data on hospitals‘ mix of occupations and their
corresponding wages by September 30, 2003, and calculate wage indexes
beginning October 1, 2004, that are adjusted to remove the effects of
occupational mix on average wages. Occupational mix data for each acute
care hospital will be collected and updated every 3 years. The
methodology for adjusting the wage index for occupational mix will be
determined after the data have been collected.
Average hospital wages vary because of differences in wages paid across
hospitals, but also because hospitals employ different mixes of
occupations. As a result, average hospital wages are higher than the
national average if the hospitals in an area employ more workers in
highly skilled occupations and lower if the hospitals employ fewer
workers in more highly skilled occupations. The current calculation of
the Medicare wage index does not distinguish between wage differences
due to geographic labor cost variation and wage differences due to
geographic variation in the mix of more highly and less highly skilled
occupations. Thus, Medicare‘s wage indexes are too high in areas with a
more highly skilled mix of hospital workers and too low in areas with a
less skilled mix of hospital workers. While geographic differences in
wages paid affect hospitals‘ labor costs, but are beyond an individual
hospital‘s ability to control, occupational mix generally is within the
control of a hospital.
Changing the calculation of the wage index to eliminate the effect of
occupational mix differences will raise the wage index for some types of
hospitals and lower it for others. Wage indexes will be reduced for
hospitals, such as metropolitan or teaching hospitals, that tend to hire
more employees in highly skilled occupations with higher wages. Wage
indexes for rural hospitals, which tend to employ a less skilled mix of
employees, are likely to go up.
While national data on the occupational mix of hospital employees are
not available, data from California demonstrate the potential effects of
changing the wage index calculation to eliminate the effects of
occupational mix differences. [Footnote 28] Without adjusting for
differences in occupational mix, the average hourly wage for hospitals
in the Oakland MSA is 57 percent higher than the average hourly wage
for nonmetropolitan California hospitals. Hospitals in the Oakland area
generally employ a greater proportion of more skilled, and therefore
more expensive, staff (see table 6). For example, in Oakland area
hospitals, RNs account for approximately 25 percent more of the total
hours worked by hospital employees than they do in nonmetropolitan
California. Recalculating the wage indexes so that they reflect the
same mix of workers in all areas reduces the difference between the
Oakland area wages and those paid in nonmetropolitan areas to 50
percent. An occupational mix-adjusted wage index in nonmetropolitan
California would be almost 4 percent higher than the current wage index
calculation (see table 7). Across metropolitan areas, the change to the
wage index would vary.
Table 6: Hospital Wages, Adjusted for Mix of Occupations, Oakland MSA
and Nonmetropolitan California, Fiscal Year 1998:
Oakland MSA:
Average hourly wage: $36.73;
Occupational mix-adjusted average hourly wage: $36.30.
Nonmetropolitan areas:
Average hourly wage: $23.40;
Occupational mix-adjusted average hourly wage: $24.27.
Percent difference:
Average hourly wage: 57.0%;
Occupational mix-adjusted average hourly wage: 49.6%.
Source: GAO analysis of wage data from 1998 California Hospital Annual
Disclosure Reports. Area average hourly wages shown here differ from
those used in calculating Medicare payments, which are based on wages
reported in Medicare hospital cost reports.
[End of table]
Table 7: Effect of an Occupational Mix Adjustment on Average Area Wages
in California, Fiscal Year 1998:
California areas: Nonmetropolitan California;
Percent difference between average wages calculated with and without an
occupational mix adjustment: 3.7%.
California areas: Bakersfield;
Percent difference between average wages calculated with and without an
occupational mix adjustment: 3.7%.
California areas: Chico-Paradise;
Percent difference between average wages calculated with and without an
occupational mix adjustment: 3.7%.
California areas: Fresno;
Percent difference between average wages calculated with and without an
occupational mix adjustment: 2.8%.
California areas: Los Angeles-Long Beach;
Percent difference between average wages calculated with and without an
occupational mix adjustment: -0.6%.
California areas: Merced;
Percent difference between average wages calculated with and without an
occupational mix adjustment: 3.7%.
California areas: Modesto;
Percent difference between average wages calculated with and without an
occupational mix adjustment: 4.8%.
California areas: Oakland;
Percent difference between average wages calculated with and without an
occupational mix adjustment: -1.2%.
California areas: Orange County;
Percent difference between average wages calculated with and without an
occupational mix adjustment: -1.5%.
California areas: Redding;
Percent difference between average wages calculated with and without an
occupational mix adjustment: 0.1%.
California areas: Riverside-San Bernardino;
Percent difference between average wages calculated with and without an
occupational mix adjustment: 0.0%.
California areas: Sacramento;
Percent difference between average wages calculated with and without an
occupational mix adjustment: 2.6%.
California areas: Salinas;
Percent difference between average wages calculated with and without an
occupational mix adjustment: 2.8%.
California areas: San Diego;
Percent difference between average wages calculated with and without an
occupational mix adjustment: -3.7%.
California areas: San Francisco;
Percent difference between average wages calculated with and without an
occupational mix adjustment: 0.7%.
California areas: San Jose;
Percent difference between average wages calculated with and without an
occupational mix adjustment: -0.9%.
California areas: San Luis Obispo-Atascadero-Paso-Robles;
Percent difference between average wages calculated with and without an
occupational mix adjustment: 1.2%.
California areas: Santa Barbara-Santa Maria-Lompoc;
Percent difference between average wages calculated with and without an
occupational mix adjustment: -1.0%.
California areas: Santa Cruz-Watsonville;
Percent difference between average wages calculated with and without an
occupational mix adjustment: -2.2%.
California areas: Santa Rosa;
Percent difference between average wages calculated with and without an
occupational mix adjustment: -3.1%.
California areas: Stockton-Lodi;
Percent difference between average wages calculated with and without an
occupational mix adjustment: 3.1%.
California areas: Vallejo-Fairfield-Napa;
Percent difference between average wages calculated with and without an
occupational mix adjustment: -1.8%.
California areas: Ventura;
Percent difference between average wages calculated with and without an
occupational mix adjustment: 0.3%.
California areas: Visalia-Tulare-Porterville;
Percent difference between average wages calculated with and without an
occupational mix adjustment: 3.7%.
California areas: Yolo;
Percent difference between average wages calculated with and without an
occupational mix adjustment: -3.2%.
California areas: Yuba City;
Percent difference between average wages calculated with and without an
occupational mix adjustment: -1.5%.
Source: GAO analysis of wage data from 1998 California Hospital Annual
Disclosure Reports.
[End of table]
[End of section]
Appendix III: Average Hospital Wages in Outlying and Central Counties of
Metropolitan Areas, by State, Fiscal Year 1997:
State: Alabama;
Average percent difference between outlying and central county
wages[A]: -8.
State: Alaska;
Average percent difference between outlying and central county
wages[A]: N/A.
State: Arizona;
Average percent difference between outlying and central county
wages[A]: -17.
State: Arkansas;
Average percent difference between outlying and central county
wages[A]: -6.
State: California;
Average percent difference between outlying and central county
wages[A]: -13.
State: Colorado;
Average percent difference between outlying and central county
wages[A]: N/A.
State: Connecticut;
Average percent difference between outlying and central county
wages[A]: -7.
State: Delaware;
Average percent difference between outlying and central county
wages[A]: -29.
State: District of Columbia;
Average percent difference between outlying and central county
wages[A]: N/A.
State: Florida;
Average percent difference between outlying and central county
wages[A]: -8.
State: Georgia;
Average percent difference between outlying and central county
wages[A]: -19.
State: Hawaii;
Average percent difference between outlying and central county
wages[A]: N/A.
State: Idaho;
Average percent difference between outlying and central county
wages[A]: -10.
State: Illinois;
Average percent difference between outlying and central county
wages[A]: -1.
State: Indiana;
Average percent difference between outlying and central county
wages[A]: -5.
State: Iowa;
Average percent difference between outlying and central county
wages[A]: -2.
State: Kansas;
Average percent difference between outlying and central county
wages[A]: -17;
State: Kentucky;
Average percent difference between outlying and central county
wages[A]: -13.
State: Louisiana;
Average percent difference between outlying and central county
wages[A]: -9.
State: Maine;
Average percent difference between outlying and central county
wages[A]: N/A.
State: Maryland;
Average percent difference between outlying and central county
wages[A]: -12.
State: Massachusetts;
Average percent difference between outlying and central county
wages[A]: -2.
State: Michigan;
Average percent difference between outlying and central county
wages[A]: -7.
State: Minnesota;
Average percent difference between outlying and central county
wages[A]: -11.
State: Mississippi;
Average percent difference between outlying and central county
wages[A]: 6.
State: Missouri;
Average percent difference between outlying and central county
wages[A]: -15.
State: Montana;
Average percent difference between outlying and central county
wages[A]: N/A.
State: Nebraska;
Average percent difference between outlying and central county
wages[A]: -12.
State: Nevada;
Average percent difference between outlying and central county
wages[A]: -26.
State: New Hampshire;
Average percent difference between outlying and central county
wages[A]: N/A.
State: New Jersey;
Average percent difference between outlying and central county
wages[A]: -11.
State: New Mexico;
Average percent difference between outlying and central county
wages[A]: 11.
State: New York;
Average percent difference between outlying and central county
wages[A]: -14.
State: North Carolina;
Average percent difference between outlying and central county
wages[A]: -12.
State: North Dakota;
Average percent difference between outlying and central county
wages[A]: -1.
State: Ohio;
Average percent difference between outlying and central county
wages[A]: -10.
State: Oklahoma;
Average percent difference between outlying and central county
wages[A]: -17.
State: Oregon;
Average percent difference between outlying and central county
wages[A]: 2.
State: Pennsylvania;
Average percent difference between outlying and central county
wages[A]: -10.
State: Rhode Island;
Average percent difference between outlying and central county
wages[A]: N/A.
State: South Carolina;
Average percent difference between outlying and central county
wages[A]: -5.
State: South Dakota;
Average percent difference between outlying and central county
wages[A]: -23.
State: Tennessee;
Average percent difference between outlying and central county
wages[A]: -11.
State: Texas;
Average percent difference between outlying and central county
wages[A]: -7.
State: Utah;
Average percent difference between outlying and central county
wages[A]: N/A.
State: Vermont;
Average percent difference between outlying and central county
wages[A]: N/A.
State: Virginia;
Average percent difference between outlying and central county
wages[A]: -14.
State: Washington;
Average percent difference between outlying and central county
wages[A]: -6.
State: West Virginia;
Average percent difference between outlying and central county
wages[A]: -6.
State: Wisconsin;
Average percent difference between outlying and central county
wages[A]: -12.
State: Wyoming;
Average percent difference between outlying and central county
wages[A]: N/A.
Note: N/A means not applicable.
[A] We averaged the percentage difference between outlying and central
county wages within each MSA across all MSAs within each state. Then,
we averaged the difference within each MSA across all MSAs that had
outlying counties within a state. The percentage difference represents
the amount by which outlying county wages are greater or less than
central county wages, so a negative number indicates lower wages in
outlying counties. These comparisons were not possible in the MSAs that
do not have any outlying counties, in the states that have no MSAs with
outlying counties, or in the states that have only outlying counties of
MSAs with central counties in bordering states.
Source: GAO analysis of 1997 hospital wages used in construction of the
2001 wage index, as reported in Medicare hospital cost reports.
[End of table]
[End of section]
Appendix IV: Average Hospital Wages across Community Types in
Nonmetropolitan Areas, by State, Fiscal Year 1997:
State: Alabama;
Number of hospitals, Large town: 17;
Number of hospitals, Small town: 26;
Number of hospitals, Rural: 10;
Average hourly wage, all nonmetropolitan hospitals: $16.30;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 2%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -1%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
12%.
State: Alaska;
Number of hospitals, Large town: 3;
Number of hospitals, Small town: 8;
Number of hospitals, Rural: 2;
Average hourly wage, all nonmetropolitan hospitals: $26.98;
Percent difference from nonmetropolitan average wage, Large town
hospitals: -5%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: 2%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
3%.
State: Arizona;
Number of hospitals, Large town: 6;
Number of hospitals, Small town: 8;
Number of hospitals, Rural: 2;
Average hourly wage, all nonmetropolitan hospitals: $18.11;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 6%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -6%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
8%.
State: Arkansas;
Number of hospitals, Large town: 16;
Number of hospitals, Small town: 33;
Number of hospitals, Rural: 7;
Average hourly wage, all nonmetropolitan hospitals: $16.21;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 6%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -4%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
18%.
State: California;
Number of hospitals, Large town: 14;
Number of hospitals, Small town: 19;
Number of hospitals, Rural: 7;
Average hourly wage, all nonmetropolitan hospitals: $21.47;
Percent difference from nonmetropolitan average wage, Large town
hospitals: -4%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: 4%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
3%.
State: Colorado;
Number of hospitals, Large town: 3;
Number of hospitals, Small town: 20;
Number of hospitals, Rural: 12;
Average hourly wage, all nonmetropolitan hospitals: $19.52;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 9%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: 1%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
20%.
State: Connecticut;
Number of hospitals, Large town: 1;
Number of hospitals, Small town: 1;
Number of hospitals, Rural: 0;
Average hourly wage, all nonmetropolitan hospitals: $25.50;
Percent difference from nonmetropolitan average wage, Large town
hospitals: -1%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: 1%;
Percent difference from nonmetropolitan average wage, Rural hospitals:
N/A.
State: Delaware;
Number of hospitals, Large town: 0;
Number of hospitals, Small town: 2;
Number of hospitals, Rural: 0;
Average hourly wage, all nonmetropolitan hospitals: $19.75;
Percent difference from nonmetropolitan average wage, Large town
hospitals: N/A;
Percent difference from nonmetropolitan average wage, Small town
hospitals: 0%;
Percent difference from nonmetropolitan average wage, Rural hospitals:
N/A.
State: District of Columbia;
Number of hospitals, Large town: N/A;
Number of hospitals, Small town: N/A;
Number of hospitals, Rural: N/A;
Average hourly wage, all nonmetropolitan hospitals: N/A
Percent difference from nonmetropolitan average wage, Large town
hospitals: N/A;
Percent difference from nonmetropolitan average wage, Small town
hospitals: N/A;
Percent difference from nonmetropolitan average wage, Rural hospitals:
N/A.
State: Florida;
Number of hospitals, Large town: 6;
Number of hospitals, Small town: 17;
Number of hospitals, Rural: 4;
Average hourly wage, all nonmetropolitan hospitals: $19.42;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 0%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -2%;
Percent difference from nonmetropolitan average wage, Rural hospitals:
2%.
State: Georgia;
Number of hospitals, Large town: 23;
Number of hospitals, Small town: 44;
Number of hospitals, Rural: 18;
Average hourly wage, all nonmetropolitan hospitals: $18.13;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 4%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -8%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
4%.
State: Hawaii;
Number of hospitals, Large town: 5;
Number of hospitals, Small town: 4;
Number of hospitals, Rural: 4;
Average hourly wage, all nonmetropolitan hospitals: $24.07;
Percent difference from nonmetropolitan average wage, Large town
hospitals: -2%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: 3%;
Percent difference from nonmetropolitan average wage, Rural hospitals:
20%.
State: Idaho;
Number of hospitals, Large town: 7;
Number of hospitals, Small town: 16;
Number of hospitals, Rural: 8;
Average hourly wage, all nonmetropolitan hospitals: $18.89;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 2%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -2%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
9%.
State: Illinois;
Number of hospitals, Large town: 26;
Number of hospitals, Small town: 40;
Number of hospitals, Rural: 5;
Average hourly wage, all nonmetropolitan hospitals: $17.77;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 4%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -9%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
7%.
State: Indiana;
Number of hospitals, Large town: 18;
Number of hospitals, Small town: 25;
Number of hospitals, Rural: 2;
Average hourly wage, all nonmetropolitan hospitals: $18.73;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 2%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -4%;
Percent difference from nonmetropolitan average wage, Rural hospitals:
8%.
State: Iowa;
Number of hospitals, Large town: 15;
Number of hospitals, Small town: 54;
Number of hospitals, Rural: 24;
Average hourly wage, all nonmetropolitan hospitals: $17.48;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 8%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -4%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
12%.
State: Kansas;
Number of hospitals, Large town: 22;
Number of hospitals, Small town: 30;
Number of hospitals, Rural: 39;
Average hourly wage, all nonmetropolitan hospitals: $16.56;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 5%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -4%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
10%.
State: Kentucky;
Number of hospitals, Large town: 15;
Number of hospitals, Small town: 35;
Number of hospitals, Rural: 21;
Average hourly wage, all nonmetropolitan hospitals: $17.27;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 3%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -3%;
Percent difference from nonmetropolitan average wage, Rural hospitals:
1%.
State: Louisiana;
Number of hospitals, Large town: 13;
Number of hospitals, Small town: 23;
Number of hospitals, Rural: 10;
Average hourly wage, all nonmetropolitan hospitals: $16.72;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 2%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -3%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
1%.
State: Maine;
Number of hospitals, Large town: 2;
Number of hospitals, Small town: 13;
Number of hospitals, Rural: 7;
Average hourly wage, all nonmetropolitan hospitals: $19.08;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 4%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -2%;
Percent difference from nonmetropolitan average wage, Rural hospitals:
1%.
State: Maryland;
Number of hospitals, Large town: 4;
Number of hospitals, Small town: 3;
Number of hospitals, Rural: 1;
Average hourly wage, all nonmetropolitan hospitals: $18.83;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 0%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: 0%;
Percent difference from nonmetropolitan average wage, Rural hospitals:
0%.
State: Massachusetts;
Number of hospitals, Large town: 1;
Number of hospitals, Small town: 1;
Number of hospitals, Rural: 1;
Average hourly wage, all nonmetropolitan hospitals: $24.39;
Percent difference from nonmetropolitan average wage, Large town
hospitals: -4%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: 20%;
Percent difference from nonmetropolitan average wage, Rural hospitals:
6%.
State: Michigan;
Number of hospitals, Large town: 15;
Number of hospitals, Small town: 20;
Number of hospitals, Rural: 23;
Average hourly wage, all nonmetropolitan hospitals: $19.57;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 5%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: 0%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
11%.
State: Minnesota;
Number of hospitals, Large town: 19;
Number of hospitals, Small town: 35;
Number of hospitals, Rural: 38;
Average hourly wage, all nonmetropolitan hospitals: $19.33;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 2%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: 1%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
8%.
State: Mississippi;
Number of hospitals, Large town: 27;
Number of hospitals, Small town: 35;
Number of hospitals, Rural: 17;
Average hourly wage, all nonmetropolitan hospitals: $16.31;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 3%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -4%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
10%.
State: Missouri;
Number of hospitals, Large town: 20;
Number of hospitals, Small town: 23;
Number of hospitals, Rural: 17;
Average hourly wage, all nonmetropolitan hospitals: $16.76;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 4%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -7%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
6%.
State: Montana;
Number of hospitals, Large town: 6;
Number of hospitals, Small town: 16;
Number of hospitals, Rural: 16;
Average hourly wage, all nonmetropolitan hospitals: $18.91;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 8%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -4%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
16%.
State: Nebraska;
Number of hospitals, Large town: 11;
Number of hospitals, Small town: 32;
Number of hospitals, Rural: 32;
Average hourly wage, all nonmetropolitan hospitals: $17.65;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 11%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -5%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
16%.
State: Nevada;
Number of hospitals, Large town: 2;
Number of hospitals, Small town: 5;
Number of hospitals, Rural: 3;
Average hourly wage, all nonmetropolitan hospitals: $20.10;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 5%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -5%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
11%.
State: New Hampshire;
Number of hospitals, Large town: 6;
Number of hospitals, Small town: 3;
Number of hospitals, Rural: 4;
Average hourly wage, all nonmetropolitan hospitals: $21.43;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 2%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: 0%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
12%.
State: New Jersey;
Number of hospitals, Large town: N/A;
Number of hospitals, Small town: N/A;
Number of hospitals, Rural: N/A;
Average hourly wage, all nonmetropolitan hospitals: N/A;
Percent difference from nonmetropolitan average wage, Large town
hospitals: N/A;
Percent difference from nonmetropolitan average wage, Small town
hospitals: N/A;
Percent difference from nonmetropolitan average wage, Rural hospitals:
N/A.
State: New Mexico;
Number of hospitals, Large town: 14;
Number of hospitals, Small town: 6;
Number of hospitals, Rural: 3;
Average hourly wage, all nonmetropolitan hospitals: $18.50;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 0%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -2%;
Percent difference from nonmetropolitan average wage, Rural hospitals:
18%.
State: New York;
Number of hospitals, Large town: 12;
Number of hospitals, Small town: 18;
Number of hospitals, Rural: 4;
Average hourly wage, all nonmetropolitan hospitals: $18.50;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 4%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -5%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
4%.
State: North Carolina;
Number of hospitals, Large town: 20;
Number of hospitals, Small town: 25;
Number of hospitals, Rural: 13;
Average hourly wage, all nonmetropolitan hospitals: $18.38;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 4%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -3%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
11%.
State: North Dakota;
Number of hospitals, Large town: 6;
Number of hospitals, Small town: 6;
Number of hospitals, Rural: 26;
Average hourly wage, all nonmetropolitan hospitals: $16.80;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 6%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -3%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
7%.
State: Ohio;
Number of hospitals, Large town: 30;
Number of hospitals, Small town: 19;
Number of hospitals, Rural: 2;
Average hourly wage, all nonmetropolitan hospitals: $18.88;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 2%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -4%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
25%.
State: Oklahoma;
Number of hospitals, Large town: 17;
Number of hospitals, Small town: 39;
Number of hospitals, Rural: 14;
Average hourly wage, all nonmetropolitan hospitals: $16.31;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 5%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -6%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
13%.
State: Oregon;
Number of hospitals, Large town: 17;
Number of hospitals, Small town: 12;
Number of hospitals, Rural: 3;
Average hourly wage, all nonmetropolitan hospitals: $22.06;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 0%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: 2%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
2%.
State: Pennsylvania;
Number of hospitals, Large town: 11;
Number of hospitals, Small town: 26;
Number of hospitals, Rural: 6;
Average hourly wage, all nonmetropolitan hospitals: $18.67;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 1%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: 0%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
3%.
State: Rhode Island;
Number of hospitals, Large town: N/A;
Number of hospitals, Small town: N/A;
Number of hospitals, Rural: N/A;
Average hourly wage, all nonmetropolitan hospitals: N/A;
Percent difference from nonmetropolitan average wage, Large town
hospitals: N/A;
Percent difference from nonmetropolitan average wage, Small town
hospitals: N/A;
Percent difference from nonmetropolitan average wage, Rural hospitals:
N/A.
State: South Carolina;
Number of hospitals, Large town: 9;
Number of hospitals, Small town: 18;
Number of hospitals, Rural: 0;
Average hourly wage, all nonmetropolitan hospitals: $18.22;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 3%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -3%;
Percent difference from nonmetropolitan average wage, Rural hospitals:
N/A.
State: South Dakota;
Number of hospitals, Large town: 8;
Number of hospitals, Small town: 8;
Number of hospitals, Rural: 21;
Average hourly wage, all nonmetropolitan hospitals: $16.48;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 4%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -3%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
10%.
State: Tennessee;
Number of hospitals, Large town: 19;
Number of hospitals, Small town: 32;
Number of hospitals, Rural: 14;
Average hourly wage, all nonmetropolitan hospitals: $17.06;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 4%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -3%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
7%.
State: Texas;
Number of hospitals, Large town: 46;
Number of hospitals, Small town: 83;
Number of hospitals, Rural: 35;
Average hourly wage, all nonmetropolitan hospitals: $16.33;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 4%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -6%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
1%.
State: Utah;
Number of hospitals, Large town: 4;
Number of hospitals, Small town: 9;
Number of hospitals, Rural: 7;
Average hourly wage, all nonmetropolitan hospitals: $19.67;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 3%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -4%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
6%.
State: Vermont;
Number of hospitals, Large town: 2;
Number of hospitals, Small town: 6;
Number of hospitals, Rural: 4;
Average hourly wage, all nonmetropolitan hospitals: $20.19;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 8%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -3%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
6%.
State: Virginia;
Number of hospitals, Large town: 8;
Number of hospitals, Small town: 20;
Number of hospitals, Rural: 9;
Average hourly wage, all nonmetropolitan hospitals: $17.83;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 4%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -2%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
6%.
State: Washington;
Number of hospitals, Large town: 17;
Number of hospitals, Small town: 8;
Number of hospitals, Rural: 15;
Average hourly wage, all nonmetropolitan hospitals: $22.71;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 3%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -4%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
16%.
State: West Virginia;
Number of hospitals, Large town: 9;
Number of hospitals, Small town: 15;
Number of hospitals, Rural: 9;
Average hourly wage, all nonmetropolitan hospitals: $17.92;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 4%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -1%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
18%.
State: Wisconsin;
Number of hospitals, Large town: 12;
Number of hospitals, Small town: 34;
Number of hospitals, Rural: 21;
Average hourly wage, all nonmetropolitan hospitals: $19.33;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 3%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: -3%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
2%.
State: Wisconsin;
Number of hospitals, Large town: 5;
Number of hospitals, Small town: 12;
Number of hospitals, Rural: 6;
Average hourly wage, all nonmetropolitan hospitals: $19.19;
Percent difference from nonmetropolitan average wage, Large town
hospitals: 2%;
Percent difference from nonmetropolitan average wage, Small town
hospitals: 1%;
Percent difference from nonmetropolitan average wage, Rural hospitals: -
12%.
Note: N/A means not applicable.
Source: GAO analysis of 1997 hospital wages used in the construction of
the 2001 wage index, as reported in Medicare hospital cost reports.
Large town, small town, and rural areas were defined using RUCA codes
rather than location in a Medicare nonmetropolitan geographic area. As
a result, 45 hospitals that receive the nonmetropolitan labor cost
adjustment were excluded from this analysis. Two states and the
District of Columbia have no nonmetropolitan areas.
[End of table]
[End of section]
Appendix V: Effect of the Current and a State-Specific Budget
Neutrality Option on Hospital Payments, by State, Fiscal Year 2000:
State: Alabama;
Total hospitals: 109;
Reclassified hospitals: 10;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 6.3%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 6.4%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -0.5%.
State: Alaska;
Total hospitals: 16;
Reclassified hospitals: 1;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 0.0%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: 0.0%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 0.0%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: 0.0%.
State: Arizona;
Total hospitals: 61;
Reclassified hospitals: 2;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 7.9%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 8.4%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -0.2%.
State: Arkansas;
Total hospitals: 78;
Reclassified hospitals: 18;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 7.3%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 6.3%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -1.6%.
State: California;
Total hospitals: 405;
Reclassified hospitals: 19;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 6.6%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.8%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 7.0%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -0.4%.
State: Colorado;
Total hospitals: 64;
Reclassified hospitals: 3;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 5.8%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 6.4%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -0.1%.
State: Connecticut;
Total hospitals: 33;
Reclassified hospitals: 6;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 7.5%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 7.1%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -1.0%.
State: Delaware;
Total hospitals: 5;
Reclassified hospitals: 2;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 6.5%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 5.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -1.5%.
State: District of Columbia;
Total hospitals: 10;
Reclassified hospitals: 0;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: N/A;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: N/A;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: 0.0%.
State: Florida;
Total hospitals: 193;
Reclassified hospitals: 10;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 2.2%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.5%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 2.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -0.2%.
State: Georgia;
Total hospitals: 160;
Reclassified hospitals: 22;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 10.6%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 9.7%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -1.5%.
State: Hawaii;
Total hospitals: 22;
Reclassified hospitals: 1;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 4.2%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 4.9%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: 0.0%.
State: Idaho;
Total hospitals: 43;
Reclassified hospitals: 8;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 4.9%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.5%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 4.0%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -1.3%.
State: Illinois;
Total hospitals: 196;
Reclassified hospitals: 22;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 6.1%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 6.4%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -0.3%.
State: Indiana;
Total hospitals: 112;
Reclassified hospitals: 23;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 5.0%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 4.7%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -0.9%.
State: Iowa;
Total hospitals: 117;
Reclassified hospitals: 8;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 8.1%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.4%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 7.3%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -1.2%.
State: Kansas;
Total hospitals: 113;
Reclassified hospitals: 10;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 10.5%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 9.5%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -1.5%.
State: Kentucky;
Total hospitals: 101;
Reclassified hospitals: 20;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 6.4%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.5%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 5.4%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -1.5%.
State: Louisiana;
Total hospitals: 128;
Reclassified hospitals: 11;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 8.0%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.5%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 8.0%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -0.4%.
State: Maine;
Total hospitals: 37;
Reclassified hospitals: 1;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 6.0%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 6.2%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -0.4%.
State: Maryland;
Total hospitals: N/A;
Reclassified hospitals: N/A;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: N/A;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: N/A;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: N/A;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: N/A.
State: Massachusetts;
Total hospitals: 80;
Reclassified hospitals: 2;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 1.6%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 2.1%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -0.1%.
State: Michigan;
Total hospitals: 156;
Reclassified hospitals: 16;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 4.2%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 4.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -0.3%.
State: Minnesota;
Total hospitals: 137;
Reclassified hospitals: 14;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 7.4%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 7,6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -0.4%.
State: Mississippi;
Total hospitals: 99;
Reclassified hospitals: 19;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 6.9%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.8%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 5.5%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -2.1%.
State: Missouri;
Total hospitals: 121;
Reclassified hospitals: 13;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 7.3%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 7.2%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -0.8%.
State: Montana;
Total hospitals: 43;
Reclassified hospitals: 4;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 13.4%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 12.1%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -1.7%.
State: Nebraska;
Total hospitals: 87;
Reclassified hospitals: 9;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 11.3%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 9.9%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -1.9%.
State: Nevada;
Total hospitals: 26;
Reclassified hospitals: 0;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: N/A;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: N/A;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: 0.0%.
State: New Hampshire;
Total hospitals: 26;
Reclassified hospitals: 4;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 9.3%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 6.8%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -2.9%.
State: New Jersey;
Total hospitals: 84;
Reclassified hospitals: 26;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 7.6%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -2.4%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 6.9%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -3.0%.
State: New York;
Total hospitals: 216;
Reclassified hospitals: 16;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 5.5%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 6.0%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -0.2%.
State: North Carolina;
Total hospitals: 121;
Reclassified hospitals: 20;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 6.8%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 6.4%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -1.0%.
State: North Dakota;
Total hospitals: 46;
Reclassified hospitals: 10;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 2.6%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.3%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 2.4%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -0.6%.
State: Ohio;
Total hospitals: 170;
Reclassified hospitals: 31;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 5.9%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.8%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 5.7%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -0.9%.
State: Oklahoma;
Total hospitals: 113;
Reclassified hospitals: 12;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 8.1%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 7.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -1.0%.
State: Oregon;
Total hospitals: 60;
Reclassified hospitals: 9;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 4.1%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.4%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 3.9%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -0.6%.
State: Pennsylvania;
Total hospitals: 200;
Reclassified hospitals: 13;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 6.6%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.8%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 6.9%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -0.5%.
State: Rhode Island:
Total hospitals: 11;
Reclassified hospitals: 2;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 9.0%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 9.2%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -0.4%.
State: South Carolina:
Total hospitals: 61;
Reclassified hospitals: 10;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 4.4%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 4.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -0.5%.
State: South Dakota;
Total hospitals: 47;
Reclassified hospitals: 3;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 8.3%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 7.7%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -1.2%.
State: Tennessee;
Total hospitals: 123;
Reclassified hospitals: 12;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 13.2%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 13.2%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -0.6%.
State: Texas;
Total hospitals: 376;
Reclassified hospitals: 39;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 11.6%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 11.7%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -0.6%.
State: Utah;
Total hospitals: 40;
Reclassified hospitals: 7;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 13.1%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 12.3%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -1.3%.
State: Vermont;
Total hospitals: 14;
Reclassified hospitals: 2;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 3.3%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 3.5%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -0.4%.
State: Virginia;
Total hospitals: 92;
Reclassified hospitals: 6;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 5.5%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 5.9%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -0.2%.
State: Washington;
Total hospitals: 86;
Reclassified hospitals: 5;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 0.4%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 0.9%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -0.1%.
State: West Virginia;
Total hospitals: 50;
Reclassified hospitals: 7;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 10.8%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 8.5%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -2.6%.
State: Wisconsin;
Total hospitals: 125;
Reclassified hospitals: 13;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 4.3%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 4.3%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -0.5%.
State: Wyoming;
Total hospitals: 24;
Reclassified hospitals: 1;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 9.7%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.5%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 9.6%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -0.5%.
National Total:
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Reclassified hospitals: 6.8%;
Change in Medicare hospital payments, Under national budget neutrality
adjustment (current law), Nonreclassified hospitals: -0.7%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Reclassified hospitals: 6.5%;
Change in Medicare hospital payments, Under state-specific budget
neutrality option, Nonreclassified hospitals: -0.6%.
Note: N/A means not applicable. Hospitals in Maryland are not paid by
Medicare under the PPS, so they were excluded from this analysis.
Source: GAO analysis of data from 2000 Medicare hospital cost reports
and the fiscal year 2000 PPS Payment Impact File from the CMS.
[End of table]
[End of section]
Appendix VI: Comments from the Centers for Medicare & Medicaid
Services:
Department Of Health & Human Services:
Centers for Medicare & Medicaid Services:
Administrator:
Washington, DC 20201:
September 4, 2002:
To: Laura Dummit:
Director, Health Care”Medicare Payment Issues:
General Accounting Office:
From: [Signed by] Thomas A. Scully:
Administrator:
Centers for Medicare & Medicaid Services:
Subject: General Accounting Office (GAO) Draft Report, "Medicare
Hospital Payments: Refinements Needed to Better Account for Geographic
Differences in Wages," (GAO-02-963):
Thank you for the opportunity to review and comment on the above-
referenced report.
The report accurately summarizes Medicare's policies pertaining to
geographic classifications and reclassifications by the Medicare
Geographic Classification Review Board (MGCRB). The report also
identifies disadvantages with using Metropolitan Statistical Areas
(MSAs) to classify hospitals geographically. In particular, the report
indicates that, in some cases, using MSAs allows a wide variation in
the average hourly wages of hospitals in the same MSA or statewide
rural area. Generally, the report found that hospitals in metropolitan
areas and in central counties of an MSA typically pay higher wages than
hospitals in outlying counties and in rural areas. The report also
found that the average wages paid by hospitals in large towns are
higher than those paid by hospitals in small towns. In addition, the
report indicates that special statutory and regulatory provisions allow
many hospitals to reclassify without meeting the standard wage
criteria. Finally, the report explored the potential impacts of
statewide budget neutrality calculations to offset the effects of
reclassification, rather than nationwide offsets that are currently
applied.
We agree that GAO has identified problems associated with using MSAs to
define labor market areas for purposes of calculating and applying the
wage index. As indicated in the report's Recommendations for Executive
Action, the Secretary has discretion over the definition of labor
market areas.
We would point out, however, that we have previously discussed concerns
very similar to those identified in the report, and conducted extensive
analysis of various alternative approaches to defining labor market
areas, including convening a meeting with representatives of numerous
hospital representatives, and solicited public comments on the
alternatives. However, no clear consensus emerged at that time
regarding how labor market areas could be improved. (See the May 26,
1993 Federal Register (58 FR 30242), the May 27, 1994 Federal Register
(59 FR 27726), and the June 2, 1995 Federal Register (60 FR 29218).)
This analysis and consultation led us to the conclusion at that time
that continuing to use MSAs as the basis for determining labor market
areas was the most reasonable approach.
The draft report recommends that the Secretary refine geographic areas
to more accurately reflect labor markets and geographic variations in
labor costs. The Census Bureau will implement changes in the
definitions of MSAs in 2003. Once those changes are available, we will
consider whether further refinements to the use of MSAs as the basis
for labor market areas would be appropriate.
Current policy on the budget neutrality states that any changes made by
the MGCRB arc based on the existing statute. The change discussed by
GAO would make the MGCRB changes a highly contentious issue within each
state, since any increases to the area wage or standardized rate based
on a hospital reclassification would need to be made budget neutral
within the state, by reducing payments to other hospitals in the state.
Accordingly, we believe this is significant and should be addressed by
Congress as a specific statutory change.
[End of section]
Footnotes:
[1] The hospital wage index reflects total employee compensation,
including hospital spending for employee wages and benefits
[2] Omnibus Budget Reconciliation Act of 1989, Pub. L. No. 101-239,
sec. 6003(h), 103 Stat. 2106, 2154 (classified to 42 U.S.C. sec.
1395ww(d) (Supp. I 1989)).
[3] Pub. L. No. 106-113, Appendix F, sec. 410, 113 Stat. 1501A-321,
376.
[4] Annual numbers throughout this report refer to fiscal years unless
otherwise noted.
[5] On July 1, 2001, the agency that administers the Medicare program
was renamed from the Health Care Financing Administration (HCFA) to
CMS. This report refers to the agency as HCFA when discussing actions
taken before the name change and as CMS when discussing actions taken
after the name change.
[6] This discussion pertains to Medicare‘s payments for hospital
operating costs; Medicare‘s payments for hospital capital costs are not
included.
[7] For example, wages for registered nurses (RN) in Seattle were 18
percent above the national average in 1999, while wages for RNs in
nonmetropolitan Alabama were 16 percent below the national average.
[8] Hospitals in Alaska and Hawaii also receive cost-of-living
adjustments for the nonlabor portion of the standardized amount.
[9] There are approximately 500 DRGs, each of which is intended to
distinguish patients with similar clinical conditions who receive
similar treatments. Each DRG is assigned a relative weight, which
compares its costliness to the average for all DRGs, and is used to
adjust the standardized amount. For example, Medicare‘s payment to a
hospital to treat a Medicare beneficiary with a respiratory infection
with complications is nearly twice that for a beneficiary with a kidney
and urinary tract infection with complications.
[10] New Jersey, Rhode Island, and Washington, D.C. do not have any
nonmetropolitan areas, and therefore do not have a statewide
nonmetropolitan wage index. Numbers include Puerto Rico‘s six urban and
one rural geographic areas.
[11] Calculations for the 2001 Medicare wage index were based on 1997
Medicare hospital cost report data. The fiscal intermediaries who
contract with CMS to process Medicare claims review the wage data
reported by hospitals on the cost reports. The fiscal intermediaries
apply basic checks as directed by CMS, flagging any wage data that fall
outside of specific parameters. When aberrant data are found, the
fiscal intermediaries require hospitals to either provide documentation
to support their reported wage data, or to correct inaccuracies. Among
the 4 fiscal intermediaries we contacted, none tracked the frequency of
aberrant data, but they did not perceive that inaccurate wage reporting
by hospitals was a major problem.
[12] To the extent that certain hospitals hire more workers in higher-
skilled occupations because they treat patients needing more complex
care than other hospitals, the payment adjustment that reflects patient
care needs, made through the DRG system, is intended to account for the
resulting higher costs.
[13] Pub. L. No. 106-554, Appendix F, sec. 304, 114 Stat. 2763A-463,
494 (classified to 42 U.S.C. sec. 1395ww(d)(3)(E) (2000)).
[14] MSAs are groups of counties containing a core of at least 50,000
people, together with adjacent areas having a high degree of economic
and social integration with that core. OMB defines the central county
or counties of an MSA as those containing the largest city or urbanized
area. An outlying county or counties qualify for inclusion in a
metropolitan area based on the amount of commuting to the central
counties and other specified measures of metropolitan character.
[15] New standards for whether to include an outlying county in an MSA
will be applied to 2000 census data. Previously, the standards were
based on population density in the outlying county and the amount of
commuting to central counties. The new standards exclude population
density as a criterion and apply a single standard of commuting levels.
[16] Initially, geographic reclassification only applied to hospital
inpatient PPS payments. However, in establishing the PPS for hospital
outpatient services, the Balanced Budget Act of 1997 directed the
Secretary of Health and Human Services to develop a method of adjusting
outpatient PPS payments to account for variation in wages (Pub. L. No.
105-33, sec. 4523, 111 Stat. 251, 445 (classified to 42 U.S.C. sec.
13951 (Supp. IV 1998))). The Secretary subsequently determined that
outpatient PPS payments would be subject to the inpatient hospital
labor cost adjustment, including the effects of geographic
reclassifications. As a result, reclassified hospitals receive a higher
labor cost adjustment to both inpatient and outpatient payments.
[17] A hospital may also reclassify to receive the higher standardized
amount. It must satisfy the proximity criterion and its costs must be
significantly greater than its current payment. This type of
reclassification has declined and is not the focus of our analyses.
[18] SCHs may elect to be paid based on their own costs or the
applicable PPS payment amount. SCHs electing payments under the PPS may
qualify to be reclassified. See U.S. General Accounting Office,
Medicare‘s Rural Hospital Payment Policies, GAO/HEHS-00-174R,
(Washington, D.C.: Sept. 15, 2000) for more detail on rural hospital
designations.
[19] Sec. 152, 113 Stat. 1501A-334. Under a statutory provision on the
length of wage index reclassifications, these hospitals were
effectively reclassified for a 3-year period. See BIPA, Sec. 304, 114
Stat. 2763A-494. Another example of legislatively reclassified
hospitals is found in the so-called ’Lugar hospital“ designation,
enacted in 1987. Certain rural counties are deemed urban if they are
adjacent to urban areas and they conform to certain criteria based on
residents‘ commuting patterns and population density as defined by OMB.
See Omnibus Budget Reconciliation Act of 1987, Pub. L. No. 100-203,
sec. 4005(a), 101 Stat. 1330, 1330-47 (classified to 42 U.S.C. sec.
1395 ww(d)(8) (1988)). Hospitals in these counties receive Medicare
payments based on the standardized amount and the wage index of the
adjacent urban area. The number of Lugar hospitals stayed relatively
constant through 2001, with 27 hospitals in 22 counties affected by
this provision. Updates to the criteria for determining metropolitan
character resulted in an increase in the number of Lugar hospitals to
41 in 31 counties in 2002. As long as OMB deems the county urban, Lugar
hospitals located in the county will continue to receive Medicare
payments as urban hospitals.
[20] See appendix III for a comparison of wages in outlying and central
counties in metropolitan areas for all states.
[21] See appendix IV for average wages across community types for all
states.
[22] To qualify for reclassification through the MGCRB application
process, metropolitan hospitals must meet the standard wage criterion
that their average wages are at least 8 percent higher than the average
in their area and nonmetropolitan hospitals must have average wages
that are at least 6 percent higher than the average in their area,
unless they are RRCs. However, RRCs must pay wages that are at least 82
percent of the average in the target area.
[23] Only about 11 percent of SCHs reclassified in 2001. It can be more
financially advantageous for them to be exempt from the PPS and have
their payments based on their actual costs.
[24] The northeast region includes New York, New Jersey, Pennsylvania,
and Connecticut.
[25] Additional Medicare payments for teaching activities and providing
a disproportionate share of care to the poor may compensate certain
higher wage metropolitan hospitals for their higher labor costs.
[26] We used 2000 data for this analysis because they were the most
recent, complete data available.
[27] See appendix V for more information on state-specific budget
neutrality.
[28] To evaluate the effects of adjusting the hospital wage index after
removing the effects of occupational mix, we obtained occupation-
specific hospital wage and staff hour data from the 1998 California
Hospital Annual Disclosure Reports submitted to the California Office
of Statewide Health Planning and Development. We calculated average
hourly wages and average share of hours contributed for each reported
occupational category. Wages and hours that were associated with
expenses that are not covered by Medicare, such as research, were
excluded. Using these data, we calculated an unadjusted average hourly
wage and an occupational-mix adjusted average hourly wage with the mix
of occupation hours held constant for each geographic area. The
difference between the two averages is the effect of occupational mix.
Our results are only suggestive of the magnitude and direction of
changes when CMS modifies its wage index calculation method. CMS has
identified the occupational categories for which it will collect wage
data, but has not yet determined the methodology for using these data
in calculating the wage index.
[End of section]
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