What is Wage Index?

Purpose

Section 1886(d)(3)(E) of the Social Security Act (the Act) requires that, as part of the methodology for determining prospective payments to hospitals, the Secretary must adjust the standardized amounts "for area differences in hospital wage levels by a factor (established by the Secretary) reflecting the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level." This adjustment factor is the wage index. Medicare uses Hospital Wage Index to adjust payments made to hospitals under the Prospective Payment System (PPS). It is strongly recommended that each hospital submits the wage-related information to the fiscal intermediary within the requested timeframe.

Calculation

The Wage Index is calculated and assigned to hospitals based on the labor market area (the geographic area) in which the hospital is located. Hospital geographic areas are currently based on the definitions of Core-Based Statistical Areas (CBSAs) which were established by the Office of Management and Budget and announced in December 2003. Per sections 1886(d)(8)(B) and 1886(d)(10) of the Act, the wage index also reflects the geographic reclassification of hospitals to another labor market area.

The Act also requires that the Wage Index is updated annually, based on a survey of wages and wage-related costs of short-term, acute care hospitals. Data included in the wage index is derived from the Medicare Cost Report, the Hospital Wage Index Occupational Mix Survey, hospitals’ payroll records, contracts, and other wage-related documentation. When calculating the Wage Index, an hourly wage for each labor market area (total wage costs divided by total hours for all hospitals in the geographic area) and a national average hourly wage (total wage costs divided by total hours for all hospitals in the nation are derived. A labor market area’s wage index value is the ratio of the area’s average hourly wage to the national average hourly wage. The wage index adjustment factor is only applied to the labor portion of the standardized amounts.

Documentation

Documentation submitted via mail should be sent to:

USPS Certified/Courier Mailings
Noridian Healthcare Solutions
Attn: Audit and Reimbursement JF
PO Box 6782
Fargo, ND 58108-6782		 Noridian Healthcare Solutions
Attn: Audit and Reimbursement JF
4510 13th Ave S
Fargo, ND 58103

 

If you have any questions regarding Wage Index, email us at JF-WageIndex@noridian.com

Resources

 

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