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Geographic Adjustment in Medicare Payment: Phase I: Improving Accuracy (2012)

Chapter: Appendix E: Comparison of the Medicare Payment Advisory Commission (MedPAC) and Institute of Medicine (IOM) Proposals for Alternative Hospital Wage Indexes (HWIs)

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Suggested Citation:"Appendix E: Comparison of the Medicare Payment Advisory Commission (MedPAC) and Institute of Medicine (IOM) Proposals for Alternative Hospital Wage Indexes (HWIs)." Institute of Medicine. 2012. Geographic Adjustment in Medicare Payment: Phase I: Improving Accuracy. Washington, DC: The National Academies Press. doi: 10.17226/13138.
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Appendix E

Comparison of the Medicare Payment Advisory Commission (MedPAC) and Institute of Medicine (IOM) Proposals for Alternative Hospital Wage Indexes (HWIs)

TABLE E-1 Comparison of the Medicare Payment Advisory Commission (MedPAC) and Institute of Medicine (IOM) Proposals for Alternative Hospital Wage Indexes (HWIs)

IOM Recommendations MedPAC Recommendations (June 2007 Report)
Recommendation 2-1: The same labor market definition should be used for both the hospital wage index and the physician geographic adjustment factor. Metropolitan statistical areas (MSAs) and statewide non-MSAs should serve as the basis for defining these labor markets. MedPAC assumes continued use of the existing hospital payment localities—MSAs/non-MSAs. Physician payment localities are not addressed.
 
Recommendation 3-2: The Centers for Medicare & Medicaid Services (CMS) should establish an ongoing agreement with the Bureau of Labor Statistics (BLS) to use all necessary wage data from the Occupational Employment Survey to compute the wage index. MedPAC creates a compensation index which incorporates wage data from BLS and the Census Bureau and data on benefits (such as health insurance and pensions) and mandatory payroll taxes from hospital, skilled nursing facility (SNF), and home health provider cost reports submitted to CMS.
 
Recommendation 3-3: The committee recommends using all occupations as inputs in the hospital wage index, each with a fixed national weight based on the hours of each occupation employed in hospitals nationwide. Recommendation 6B: The secretary should establish a hospital compensation index that uses wage data from all employers and industry-specific occupational weights.
 
Recommendation 3-4: CMS should apply the proposed hospital wage index to non–Inpatient Prospective Payment System facilities (non-IPPS facilities), using nationwide occupation-specific weights derived from data for each type of facility. Recommendation 6C: The secretary should use the hospital compensation index described in recommendation 6B for the home health and skilled nursing facility prospective payment systems and evaluate its use in the other Medicare fee-for-service prospective payment systems.
 
Suggested Citation:"Appendix E: Comparison of the Medicare Payment Advisory Commission (MedPAC) and Institute of Medicine (IOM) Proposals for Alternative Hospital Wage Indexes (HWIs)." Institute of Medicine. 2012. Geographic Adjustment in Medicare Payment: Phase I: Improving Accuracy. Washington, DC: The National Academies Press. doi: 10.17226/13138.
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Recommendation 5-1: The committee recommends that wage indexes be adjusted using formulas based on commuting patterns for health care workers who reside in a county located in one labor market but commute to work in a county located in another labor market. Recommendation 6B: The secretary should establish a hospital compensation index that is adjusted at the county level and smooths large differences between counties.
 
Recommendation 5-2: The committee’s recommendations are intended to replace the system of geographic reclassification and exceptions that is currently in place for health care providers. Recommendation 6A: Congress should repeal the existing hospital wage index statute, including reclassifications and exceptions, and give the secretary authority to establish new wage index systems.
Suggested Citation:"Appendix E: Comparison of the Medicare Payment Advisory Commission (MedPAC) and Institute of Medicine (IOM) Proposals for Alternative Hospital Wage Indexes (HWIs)." Institute of Medicine. 2012. Geographic Adjustment in Medicare Payment: Phase I: Improving Accuracy. Washington, DC: The National Academies Press. doi: 10.17226/13138.
×
Page 179
Suggested Citation:"Appendix E: Comparison of the Medicare Payment Advisory Commission (MedPAC) and Institute of Medicine (IOM) Proposals for Alternative Hospital Wage Indexes (HWIs)." Institute of Medicine. 2012. Geographic Adjustment in Medicare Payment: Phase I: Improving Accuracy. Washington, DC: The National Academies Press. doi: 10.17226/13138.
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Page 180
Next: Appendix F: Description of Three Optional Sources for Facility Wage Index Data »
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Medicare is the largest health insurer in the United States, providing coverage for 39 million people aged 65 and older and 8 million people with disabilities, and reaching more than an estimated $500 billion in payments in 2010. Although Medicare is a national program, it adjusts fee-for-service payments according to the geographic location of a practice. While there is widespread agreement about the importance of providing accurate payments to providers, there is disagreement about how best to adjust payment based on geographic location.

At the request of Congress and the Department of Health and Human Services (HHS), the Institute of Medicine (IOM) examined ways to improve the accuracy of data sources and methods used for making the geographic adjustments to payments. The IOM recommends an integrated approach that includes moving to a single source of wage and benefits data; changing to one set of payment areas; and expanding the range of occupations included in the index calculations. The first of two reports, Geographic Adjustment in Medicare Payment: Phase I: Improving Accuracy, assesses existing practices in regards to accuracy, criteria consistency, evidence for adjustment, sound rationale, transparency, and separate policy adjustments to reform the current payment system. Adopting the recommendations outlined in this report will mean a change in the way that the indexes are calculated, and will require a combination of legislative, rule-making, and administrative actions, as well as a period of public comment.

Geographic Adjustment in Medicare Payment will inform the work of government agencies such as HHS, the Centers for Medicare and Medicaid Services, congressional members and staff, the health care industry, national professional organizations and state medical and nursing societies, and Medicare advocacy groups.

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