Rural-Urban Issues in the Wage Index Adjustment for Prospective Payment in Skilled Nursing Facilities
In July of 1998, the method for determining payments for Medicare services in skilled nursing facilities (SNFs) began a three-year transition from retrospective cost-based reimbursement to a SNF prospective payment system (SNF PPS). SNF PPS is based on national rates with an adjustment for differences in local wages that is based upon the Medicare inpatient hospital wage index.1 Many problems of concern to rural providers have been identified in the hospital wage index, and additional problems may arise if relative wage patterns for hospitals and nursing homes are not the same. In an analysis of hourly wages for Medicare-certified SNFs, we find that:
- Rural-urban SNF wage differences are similar to, but not quite as severe as, those found in hospitals. SNF hourly wages paid in non-metropolitan areas averaged 83.5% of those in metropolitan areas, compared to 81.8% among hospitals.
- Wages in hospital-based SNFs are substantially higher than those in freestanding facilities in all but the most rural counties.
- All non-metropolitan areas in a state are grouped into a single labor market for wage index purposes. SNFs in the very rural counties tend to have lower wages and benefit by being grouped in statewide rural markets, but SNFs in more urbanized non-metropolitan counties tend to have a wage structure that is similar to what is found in smaller metropolitan areas. Unlike PPS hospitals, SNFs have no recourse to geographic reclassification to correct possible labor market misclassifications.
- A switch from a wage index based on hospital wages to one based on SNF wages would result in a slight redistribution of payments away from facilities in large metropolitan areas.