The Centers for Medicare & Medicaid Services (CMS) on April 14, 2008, issued a proposed rule that would change Medicare payment rates and policies for inpatient hospital services furnished by acute care hospitals to people with Medicare in fiscal year (FY) 2009. The changes would apply to more than 3,500 hospitals paid under the Inpatient Prospective Payment System (IPPS), effective for discharges on or after October 1, 2008 through September 30, 2009.

The proposed rule, which updates payments to hospitals, continues the transformation of the Medicare program to a prudent purchaser of services by proposing a number of payment policies that would help protect the solvency of the Medicare trust funds so that Medicare will be available to future beneficiaries. These proposals include making payments more accurate and strengthening incentives for hospitals to improve the quality of care they furnish to Medicare beneficiaries.

This Fact Sheet discusses the proposed changes to payment rates and policies for inpatient services in acute care hospitals in FY 2009, including physician-owned specialty hospitals, based on the Medicare Severity Diagnosis Related Groups (MS-DRGs) that began replacing the prior DRGs for discharges in FY 2008. It also proposes changes to the Medicare Severity Long-Term Care DRGs (MS-LTC-DRGs) which serve as the basis for payment for services to people with Medicare in long-term care hospitals (LTCHs) during rate year 2009.

Wage Index and Data

Proposed FY 2009 Wage Index Update: The FY 2009 proposed national average hourly wage (AHW) is $32.2252, an increase of 4.2 percent over the FY 2008 figure, based on data for hospital cost reporting periods beginning on or after October 1, 2004 and before October 1, 2005. For FY 2009, 106 labor market areas have AHWs that are greater than or equal to the national AHW, and 329 are below.

Occupational Mix Adjustment: The proposed occupational mix adjustment for FY 2009 will be based on the same 6-month 2006 Occupational Mix Survey that was used to compute the FY 2008 adjustment, but the data for FY 2009 have been updated to include revised 1st quarter data for 21 providers and revised 2nd quarter data for 22 providers. CMS also added 1st quarter data for 19 providers who submitted data during the original 1st quarter submission period but had no relevant data to report prior to the FY 2009 wage index, and 2nd quarter data for 4 providers who submitted occupational mix data during the original 2nd quarter submission period but had no relevant data to report prior to FY 2009. This brings the total providers having occupational mix survey data for the proposed FY 2009 wage index to 3,364.

For FY 2009, CMS is again allowing hospitals to use full-time equivalent (FTE) or discharge data for the allocation of multi-campus hospital's wage data among the different labor market areas where its campuses are located. The Medicare cost report will be updated in spring 2008 to provide for the reporting of FTE data by campus for multi-campus hospitals. Since the data from cost reporting periods that begin in FY 2008 will not be used in calculating the wage index until FY 2012, a multi-campus hospital will still have the option, through FY 2011, to use either FTE or discharge data for allocating wage data among its campuses.

Rural Floor and Imputed Floor Budget Neutrality: CMS is required to give urban hospitals within a state a wage index that is no less than the applicable rural wage index in that state. However, this adjustment must be made in a budget neutral manner. CMS is proposing to make such budget neutrality adjustments on a state-wide basis, rather than on a national basis, beginning with the FY 2009 wage index.

CMS is also proposing to extend the imputed floor through FY 2011. Like the rural floor, the imputed rural floor is applied at the state level. For this reason, CMS is also proposing to apply the imputed floor budget neutrality adjustment to the wage index on a state-wide basis, rather than on a national basis.
Geographic Reclassification

Average Hourly Wage Comparison For Individual Reclassification: CMS is proposing to change the average hourly wage (AHW) comparison criteria that an individual hospital must meet in order for the Medicare Geographic Classification Review Board (MGCRB) to approve a geographic reclassification application. Specifically, CMS is proposing that an urban hospital seeking reclassification have an AHW that is at least 88 percent of the AHW for the area to which it seeks reclassification rather than 84 percent as is currently required. CMS is also proposing to increase the percentage for rural hospitals seeking individual reclassification to 86 percent from 82 percent of the AHW in the desired labor market area. Finally, CMS is proposing to reevaluate these standards when there are significant changes to labor market definitions in order to allow CMS to consider the effects of periodic changes in labor market boundaries, and provide a regular timeline for updating and validating the reclassification criteria.

Average Hourly Wage Comparison For County Group Reclassification: The current AHW comparison criterion for county group reclassification is 85 percent, meaning that in order to reclassify, all hospitals in a county must have an aggregate AHW that is at least 85 percent of the labor market area to which they seek reclassification. CMS is proposing to set the standard for county group reclassification, which is currently 1 percent higher than the standard for individual hospital reclassification, at 88 percent, the same percentage required for individual reclassification.

More on Occupational Mix...


Section 508 Reclassifications: The proposed rule notifies hospitals that per the Medicare, Medicaid and SCHIP Extension Act all Section 508 reclassifications, as well as special exception providers' wage indexes, will expire on September 30, 2008. These providers will revert back to their home area wage index, plus any applicable out-migration adjustment or current/prior reclassification.

Excerpted from Centers for Medicare and Medicaid Services, Office of Media Affairs, Proposed Fiscal Year 2009 Payment, Policy Changes for Inpatient Stays in General Acute Care Hospitals, April 14, 2008.

Publication Date: Thursday, August 07, 2008