HHS submits plan to revamp wage-index system

HHS recommends using commuting data to establish a labor market area and wage-index value for each hospital as a way to reform the Medicare wage-index system, according to a 66-page report that HHS Secretary Kathleen Sebelius sent to Congress. The 2010 healthcare reform law required HHS to submit a comprehensive plan to change the system, which the healthcare industry expected last December. Many hospitals have complained the current methodology, which is based on labor markets established by the Office of Management and Budget, often doesn’t reflect the true labor costs for individual hospitals, particularly ones on the periphery of those markets, the report said. HHS proposes a commuting-based wage index, a system it says “would use smaller, more discrete labor areas and only incorporates wage data from hospitals that actually employ workers in that area.” The report addresses five issues related to implementing that system for the Medicare hospital inpatient prospective payment system: available and accurate commuting data; the potential for hospitals to change hiring patterns in response to change in the wage index; portability to other Medicare payment systems; the need for exceptions; and a transition. Eric Zimmerman, a partner with Mcdermott, Will & Emery in Washington, said the CMS acknowledges that implementing a new system would require statutory change. “It’s a politically thorny issue that will be very difficult for Congress to embrace and advance,” he said. “And as such, it is probably not going anywhere in the short term.”