Hospital Occupational Mix: The Robin Hood Factor Gone Wrong

The concept seemed simple enough, even if the outcome was unexpected. According to Kristin Reiter, Rebecca Slifkin, and Mark Holmes, writing under a cooperative agreement with the Health and Human Services' Office of Rural Health Policy, Health Resources and Services Administration, the hospital prospective payment system (IPPS) is designed to standardize payments for inpatient care. Under this system, hospitals receive a base operating payment and a capital payment for each Medicare case. The base operating rate is split into two components-a labor-related amount and a non-labor related amount.

The Benefits Improvement and Protection Act of 2000 (BIPA) required the Centers for Medicare and Medicaid Services (CMS) to collect data on the occupational mix of hospital employees for the purpose of constructing an occupational mix adjustment to the Medicare Hospital wage index in order to capture the local cost of labor. The intent was to improve the accuracy of hospital payments by ensuring that the wage index better reflects the differences among areas in the cost of the average mix of workers employed.

Theoretically, according to Reiter, Slifkin, and Holmes, "variation across hospitals in the cost of care that is due to efficiencies differences (such as decisions about the mix of professionals used to provide care to similar patients) should not result in payment difference, as these factors are assumed to be under management's control and provide the financial incentive to maximize efficiency."

It's what Dale Baker CPA; FHFMA, President of Baker Healthcare Consulting, Inc. (BHC), an Indianapolis-based consulting firm specializing in Medicare Payment strategies, especially wage index and Medicare geographic reclassification matters, calls the Robin Hood factor. The Congress, amended the Social Security Act to instruct the Centers for Medicare and Medicaid Services (CMS) to collect data every three years on the occupational mix of employees for each short-term, acute care hospital participating in the Medicare program, in order to construct an occupational mix to the wage index, beginning with 19 occupations in 2003. The law also required the application of the occupational mix adjustment to the wage index beginning October 2004.

According to Baker, however, that first survey did not go according to plan. Prior to the data collection, it was assumed that urban hospitals used workers with a higher/more advance skills mix (like registered nurses) while rural hospitals used a workers with a lower skills mix (LPNs, orderlies, etc.). "The survey and data collection was intended to level the playing field with respect to Medicare payments by using the data to arrive at an average national hourly wage," he says. It was assumed that this adjustment would benefit small, generally rural hospitals. After crunching the numbers, the agency found out that the information collected just didn't work, so they eliminated the skills mix altogether and collapsed the 19 occupations into 7 departmental subtotals." Baker adds that because the data collected didn't work, the agency was only able to apply it to 10 percent of the wage index in the first years of the program, FY2005 and FY2006.

The result was that, contrary to the intent, hospitals in New York City for example ended up with higher Medicare payments and approximately a third of the rural hospitals experienced decreases in payment.

The Bellevue vs. Leavitt Decision

The shortchanged hospitals sued CMS, and on April 3, 2006, the Court of Appeals for the Second Circuit ordered the agency to apply the occupational mix adjustment to 100 percent of the wage index effective for Federal fiscal year (FY) 2007. The Court required CMS to "immediately…collect data that are sufficiently robust to permit full application of the occupational mix adjustment." The Court also required that all "data Collection and measurement and any other preparations necessary for full application should be completed by September 30, 2006, at which time the agency was instructed to immediately apply the adjustment in full."

In order to carry out the Court's order, CMS was obligated to collect new occupational mix data from hospitals and determine the mix adjustment by that Court-mandated September date. However, given the constraints of the data collection process, hospitals were instructed to collect occupational mix data for the first three months of the six-month time frame previously announced for the 2006 survey.

The data from the second three months of the time frame would be used for FY 2008 and FY 2009 payments and for 2010 and 2011, CMS will use July 2007-June 2008-a full year-for the first time.

Baker notes that to encourage 100% compliance by hospitals, CMS uses a "soft hammer," that is hospitals are warned that if they don't submit the occupational mix data, the agency may use a negative adjustment to determine payment.

However, to date, the agency hasn't actually levied that penalty and hospitals typically are diligent about submitting the required information.

Getting it Right

This 2007-2008 data will only include four nursing categories-registered nurses (RNs), licensed practical nurses (LPNs), medical assistants, aides/orderlies/attendants and an "all other" category.

"The biggest mistake hospitals can make is relying on job descriptions to complete the survey instead of actually talking with the nursing executives about what they do. It's essential to have the Finance executives talking with the nursing executives prior to completing the survey--to review the actual duties of RNs, LPNs, nurses aides, orderlies, and medical assistants, rather than simply rely on job descriptions."

He adds that the process used to interpret the occupational mix data is counter-intuitive. Although hospitals may feel that employing more RNs to patient cases is a way of improving patient care, the higher hourly wage that results in not rewarded by the occupational mix adjustment. He notes that it is better for a hospital to include as many lower-paid workers as possible, while completing the survey according to the instructions.

"Don't include nursing executives that do not provide patient care" he says. "Exclude advance practice nurses. Use the lowest skills worker applicable, while following survey instructions. For example, transporters (employees that move patients to, for example, the radiology department) are includable in the nursing aides category even if the salary is charged to radiology.

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Publication Date: Thursday, August 07, 2008