HJAR May/Jun 2022

MEDICARE AWI 10 MAY / JUN 2022 I  HEALTHCARE JOURNAL OF ARKANSAS   EXCEPTIONS The basic wage index can result in major differences between adjoining geographic areas. Because of this, numerous exceptions to the basic calculation have been incorpo- rated into the system that permit hospitals to have their payments adjusted by a higher wage index value. There are seven different reclassifications and exceptions that hospi- tals can obtain. More than 40% of hospitals take advantage of some type of exception. The most common is for hospitals around a state border to reclassify into a neighbor- ing state’s nearby MSA. The widespread use and implied necessity of these excep- tions raises questions about the underlying program methodology; any program that grants exceptions at more than 40% is not a fair and accurate formula for payment rate determinations. RURAL FLOOR In 1999, CMS implemented the rural floor, as required by the Balanced Budget Amend- ment (BBA). In a particular state, an MSA cannot be paid lower than the rural AWI, hence the rural floor. To pay for the rural floor, a nationwide budget neutrality adjust- ment is made each year. In essence, if a hos- pital receives more funding, then the pool is adjusted nationally, and others receive a decrease to offset the change. In 2009, CMS proposed a rule to move to adoption of statewide, rather than nation- wide, budget neutrality for the rural floor. Thus began a three-year period of transi- tioning to a statewide budget neutrality. As a result, states with hospitals receiving a rural floor wage index would have funded the higher payments for those hospitals entirely within the state. In 2010, the Affordable Care Act (ACA) included a provision to prohibit CMS from implementing the statewide budget neu- trality adjustment. Instead, it required CMS to revert to a nationwide budget neutrality adjustment in 2011. CMS cautioned about the potential for gaming this program by stating, “rural What’s Wrong with the AWI? CIRCULARI T Y TheAWI gives financial benefit to hospi- tals in regions that are already able to pro- vide higher wages while decreasing funding to hospitals in other areas. Hospitals that moderate increases in hourly wages due to financial considerations, such as high gov- ernment payer mix and low commercial pay rates, become low-cost providers, unable to keep up with other regions’ pay increases. The result is that regions with higher pay increases have an increase in the AWI, and other states like Arkansas, Alabama, and West Virginia continue to get pushed lower. This occurs incrementally over time, but with each passing year, the gap widens. To illustrate how this happens, consider the following: in 2003, the lowest wage index was 0.759, and the highest was 1.5185 — a difference of 100%. However, this gap has since widened considerably; in 2019, the lowest wage index had dropped to 0.6704, and the highest rate had climbed to 1.9025 — a difference of 184%. In the AWI system, even minor changes can cost hospitals mil- lions of dollars, so this widening gap is quite alarming. The area wage index (AWI) is a vital com- ponent of determining Medicare hospital payment rates. The AWI has become con- troversial in hospital and hospital associ- ation circles both because of the changes in the payments that have been influenced by Congress and because of the regulatory changes implemented by the Centers for Medicare and Medicaid Services (CMS). What is AWI? The basic premise of the AWI is that payments should be partially based upon the local cost of labor. If, for example, it costs more to hire a nurse in one market than another, then payments should reflect that difference because area labor costs are beyond a healthcare provider’s con- trol. Hospitals report wage data for their employees yearly, and those numbers are used to calculate theAWI. The same pool of funding is used for the AWI, so as payment is adjusted each year, there are increases to some hospitals and decreases to others. TheAWI is broken down into metropoli- tan statistical areas (MSA), and the rest of a state is combined in one rural area. In Arkansas, our MSAs are in Little Rock, Fay- etteville, Fort Smith, Texarkana, Pine Bluff, Memphis/West Memphis, and Jonesboro. Core-Based Statistical Area (CBSA) Fayetteville-Springdale-Rogers, AR Fort Smith, AR-OK Hot Springs, AR Jonesboro, AR Little Rock-North Little Rock-Conway, AR Memphis, TN-MS-AR Pine Bluff, AR Rural Arkansas Final 2022 Wage Index 0.8271 0.7998 0.8584 0.8002 0.8202 0.8458 0.7827 0.7132