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January 16, 2017
Health Policy Blog Sneak Peek: 2018 Wage Index Prophesies and Other Wintertime Magic

2018 Wage Index Prophesies and Other Wintertime Magicby Vice President of Corporate Communications Deanna Moore

It’s that magical time of year again! The air is growing cold, the stars somehow seem shinier, children are frolicking in the new-fallen snow, and perhaps most exciting of all…The Center for Health Affairs is afforded a sneak peek at the upcoming fiscal year’s wage index trend!

Would I be wrong if I guessed that perhaps you’re not quite as excited about the 2018 wage index thing as you are about some of the other winter-time happenings? After all, what is wage index anyway but a factor used in the Medicare reimbursement formula that accounts for regional differences in wages?

I’m not going to lie, on the face of it, it sounds kind of boring. Yet, if you stop to think about it, wage index is a huge deal to hospitals. Small changes in the data hospitals report to the Centers for Medicare and Medicaid Services, the administrative agency that determines wage index, can mean tens of millions of dollars in reimbursement differences to a region. That’s right. Tens of millions of dollars that could be used to care for patients, streamline hospital operations, provide community benefit and just generally carry out all the things that hospitals love to do.

It’s. A. Pretty. Big. Deal.

That’s why for the last six years, The Center has partnered with the Reimbursement Alliance Group, a wage index consultancy, to work with members to ensure that the data submitted to CMS for the Northeast Ohio region is as advantageous as possible. So now that you’re on board with 2018 wage index being the “it” thing right now, I’ll share with you the insights I just gleaned from Jerrod Miller, a partner at Comprehensive Reimbursement Inc., a principal of the Reimbursement Alliance Group, and our key contact when it comes to all things wage index. He has some good news and some bad news.

The Bad News

For FY 2018, wage index will most likely decline.

The Good News

It’s not as bad as it could have been.

The Complicated Explanation

In order to fully appreciate the good and bad news, there are a few things you must know.

1. Wage index factor is based on a region’s “average hourly wage” and how it compares to the national average hourly wage.

2. Wage index is determined after several steps. First, hospitals submit their data and CMS provides an initial regional average hourly wage. Then, hospitals can propose adjustments for the CMS auditors. If the changes are accepted, the final average hourly wage number will be different than what was initially proposed by CMS.

3. CMS auditors go through a very detailed review of the hospital’s submitted data and proposed adjustments, meaning, we still don’t know the final values until the audits are complete and the final 2018 wage index “PUF” is released.

4. PUF stands for “Public Use File” and is more than just an adorably-named healthcare acronym. PUF files tell us all the final numbers related to wage index.

Now that you are aware of these key facts, let’s go back to the bad news...

The initial data submitted by The Center’s members show an increase in average hourly wage of .67 percent; and while an increase is good, that increase is not keeping pace with what is being seen nationally. Based on the trend over the last five years, the national average hourly wage is expected to increase more than Northeast Ohio’s, a situation that will widen the gap between the region and the nation’s average hourly wage. Since wage index values are based on how a region’s wages compare to national wages, this growing gap means the Cleveland area’s 2018 wage index factor will almost certainly decrease.

There is a silver lining to this sad news and it has to do with that interim step in the wage index process of proposing adjustments to the CMS auditors. In fiscal year 2017, average hourly wage for the Cleveland area was $37.80; however, when data was initially submitted for fiscal year 2018 wage index, the average hourly wage had dropped to $37.64. In collaboration with the Reimbursement Alliance Group, the reimbursement experts at our member hospitals were able to propose adjustments that would increase average hourly wage to $38.05 – a more than $0.40 increase. Though the number is not finalized – we will have to wait on the PUF file to know for sure what happens – we know that any changes that nudge the average hourly wage closer to the nation’s, even if the wage index value itself drops, will have a beneficial impact on the region’s hospitals. In fact, this could be one of those tens-of-millions-of-dollars type impacts, which kind of puts the whole declining wage index factor into perspective.

More Good News

There’s some more good news, too. Beyond making adjustments to the data submitted to CMS, there are things we can do as a region to bump up our wage index numbers and bring in additional reimbursement dollars. Or, at a very minimum, there are easy-to-identify reasons why the Cleveland-area average hourly wage is not keeping pace with the nation’s. But I’m going to save that for another day. I want to make sure you have more to look forward to this winter and what could possibly be better than anticipating a more thorough understanding of the factors that influence average hourly wage? Probably nothing.

Stay tuned for more blog posts from Deanna Moore and The Center's team of health policy experts in Spring 2017!

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