Rural/Urban and Regional Variation in the 2019 CMS Hospital Wage Index
Background
The Medicare hospital Inpatient Prospective Payment System (IPPS) is designed to pay hospitals for services provided to Medicare beneficiaries based on a national standardized amount adjusted for the patient’s condition and related treatment. Further, Social Security Act Section 1886(d)(3)(E) requires that the standardized amount be adjusted for differences in hospital wage levels, which the Centers for Medicare & Medicaid Service (CMS) implemented through the wage index system. CMS also uses the hospital wage index for the Outpatient Prospective Payment System (OPPS) and payment calculations for skilled nursing facilities, inpatient rehabilitation facilities and other providers, but not Critical Access Hospitals (CAHs), which are exempt because they are not paid under the IPPS. In computing the wage index, CMS calculates an average hourly wage for each urban and rural 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). A labor market area’s wage index value is the ratio of the area’s average hourly wage to the national average hourly wage.