A Rural Urban Comparison of the Proposed 2020 Wage Index

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On April 23, 2019, the Centers for Medicare & Medicaid Services (CMS) released its annual proposed update for the hospital Inpatient Prospective Payment System for fiscal year 2020 that starts in October 2019.  In the proposed update, CMS recognizes that the current wage index system perpetuates and exacerbates the disparities between high and low wage index hospitals.  To address these disparities, CMS is proposing a quartile adjustment be applied: hospitals with a wage index value below the 25th percentile value (0.8482 for FY 2020) of the updated wage indexes receive an increase that is “half the difference between the otherwise applicable wage index value for that hospital and the 25th percentile wage index value across all hospitals”. To ensure budget neutrality of this change, the wage index for hospitals above the 75th percentile value (1.0351 for FY 2020) is then decreased so “Medicare spending does not increase as a result of this proposal.” To mitigate payment decreases due to these proposals, CMS applies a 5-percent cap on any decrease in a hospital’s wage index from its final wage index for fiscal year 2019.

The NC Rural Health Research Program‘s brief, A Rural Urban Comparison of the Proposed 2020 Wage Index, describes and compares the effect of the proposed quartile adjustment and cap on the updated 2020 wage indexes for urban and rural hospitals.


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