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Proposed Wage Index Changes
The federal fiscal year (FFY) 2023 inpatient prospective payment system (IPPS) proposed rules address two recent cases that have a significant impact on the wage index, while also proposing a permanent plan to help lessen volatility in the wage index.
CMS is proposing to continue the adjustment for hospitals whose wage index value is in the bottom quartile, which is referred to as the “Low Wage Index Hospital Policy.” FFY 2023 is the final year of the four-year quartile adjustment. However, last month, a district court ruled in Bridgeport Hospital et al v. Becerra that the U.S. Department of Health & Human Services secretary did not have the authority to implement this policy. CMS notes that while the quartile adjustment is included in the proposed rules, the final rules methodology could be different. On a related note, the ramifications of the recent district court decision have not yet been addressed.
Similarly, CMS noted the FFY 2023 rural wage index floor would continue to be computed without consideration to hospitals that are redesignated as rural per Section 412.103. Earlier this month, the district court ruled in Citrus HMA, LLC, d/b/a Seven Rivers Regional Medical Center v. Becerra that CMS did not have the authority to compute a rural wage index floor differently than the computation of the rural wage index. CMS notes that continuing the rural wage index floor computation the same as the prior year is contrary to the judgment and notes that updates in the case or comments to the proposed rules could result in different methodology in the final rules.
While CMS says the pandemic did not materially alter the FFY 2023 average hourly wages, it is proposing a permanent policy that would limit a wage index decrease in any given year to 5 percent. CMS finally acknowledges that it is difficult for hospitals to plan when the wage index values can change drastically. The 5 percent decline is hospital specific. CMS would compare a hospital’s final wage index value in the prior fiscal year with the wage index for the start of the next fiscal year, noting the current year cannot be less than 95 percent of the prior year. It will be important for hospitals to evaluate timing related to redesignations due to this rule that result in a change in the wage index mid-year.
In addition, implementing this policy will likely eliminate further guardrails in FFY 2024 when the full impact of the pandemic is included in the wage index. Similarly, when future census changes are incorporated, CMS noted the 5 percent cap would eliminate the need for special provisions. To pay for this change, CMS is proposing to adjust the budget neutrality adjustment to the standardized amount, which it notes as being within its authority.
A complete copy of the proposed rules including other wage index changes may be found at the CMS website. For more information or assistance, please contact your advisor or submit the Contact Us form below.