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

Chapter: Appendix F: Description of Three Optional Sources for Facility Wage Index Data

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Suggested Citation:"Appendix F: Description of Three Optional Sources for Facility Wage Index Data." 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 F

Description of Three Optional Sources for Facility Wage Index Data

TABLE F-1 Description of Three Optional Sources for Facility Wage Index Data

(1)
CMS current: IPPS hospital average wage survey (S-3)
(2)
CMS option—electronically submitted payroll data, dollars, and hours by SOC
(3)

BLS option—OES wage surveys
(2A)

All-Part A providers
(2B)

Hospital providers only
(3A)
All-employer average wages
(3B)

Hospital average wages
Description and sources “CMS Hospital Wage Index,” computed from annual aggregate average hospital wages, adjusted to remove wages from non-IPPS subproviders and to add benefits and contract labor; further adjusted every 3 years to account for variation in nursing occupation mix. Average wage data are obtained from the annual Medicare cost reports; occupation mix adjustments are computed from a separate tri-annual hospital nursing survey “CMS Part A Wage Index,” computed for each type of provider, or for hospitals only. Annually submitted data would include total wages and total hours paid, aggregated at the SOC level, and will be submitted directly from annual payroll files. Average wages could be computed across all health care providers, or separately by type of reporting provider (e.g., hospitals, SNFs, HHAs) “BLS Part A Wage Index,” using BLS reported average wages for a set of health care occupation codes. Data can be captured by occupation code across all industries, across health care industries only, or by health care sector (e.g., hospitals, SNFs, HHAs)
Suggested Citation:"Appendix F: Description of Three Optional Sources for Facility Wage Index Data." Institute of Medicine. 2012. Geographic Adjustment in Medicare Payment: Phase I: Improving Accuracy. Washington, DC: The National Academies Press. doi: 10.17226/13138.
×
(1) CMS current: IPPS hospital average wage survey (S-3) (2) CMS option—electronically submitted payroll data, dollars, and hours by SOC (3) BLS option—OES wage surveys
(2A)

All-Part A providers
(2B)

Hospital providers only
(3A)
All-employer average wages
(3B)

Hospital average wages
Calculation Relative wages are computed from facility-level data aggregated by MSA and state non-MSA Relative wages would be computed from facility-level data aggregated by MSA and state non-MSA, or could be aggregated to hospital-specific areas (e.g., nearest neighbor) Data are available by MSA and multiple “balance-of state” non-MSA areas; facility-specific data are not available
Occupation weights Added as adjustment to hospital-level average wage Fixed weight (Laspeyres type) based on submitted data by facility type Fixed weight (Laspeyres type) based on national employment shares by industry sector
Suggested “Scoring” on Specific Desirable Characteristics
Characteristics to consider and compare (1) CMS current: IPPS hospital average wage survey (S-3) (2) CMS option—electronically submitted payroll data, dollars, and hours by SOC (3)

BLS option—OES wage surveys
(2A)

All-Part A providers
(2B)

Hospital providers only
(3A)
All-employer average wages
(3B)

Hospital average wages
Timeliness 4-year lag from reported wage data to applied index Potentially as little as a 1-year lag if facilities submit payroll data at the end of the calendar year Data are from 3 to 5 years old when applied to index (due rolling sample method)
Volatility Data are unstable year to year due to large numbers of one- and two-hospital markets Likely to be improved over S-3 survey data, because more providers are contributing data to any given market Some improvement over S-3 if data are collected from all hospitals rather than IPPS only, but still suffers from small numbers within many markets Found to be less volatile in testing; likely due to rolling sample method and all-employer data The sample sizes for hospital-only respondents are likely to be too small for stability
Suggested Citation:"Appendix F: Description of Three Optional Sources for Facility Wage Index Data." Institute of Medicine. 2012. Geographic Adjustment in Medicare Payment: Phase I: Improving Accuracy. Washington, DC: The National Academies Press. doi: 10.17226/13138.
×
Characteristics to consider and compare (1) CMS current: IPPS hospital average wage survey (S-3) (2) CMS option—electronically submitted payroll data, dollars, and hours by SOC (3)

BLS option—OES wage surveys
(2A)

All-Part A providers
(2B)

Hospital providers only
(3A)
All-employer average wages
(3B)

Hospital average wages
Reporting burden (to providers) Annual S-3 and tri-annual occupation mix surveys have many exceptions, and often require manual input One-time burden on providers to load OES occupation categories; after that reporting is a once/ year electronic file with individual employee hours and pay or summed by OES group No added burden to hospitals
Data completeness, hourly wages All IPPS providers submit data, and nearly all submit the occupation mix survey Assuming all providers would be required to submit data for complete payroll Depends on the level of detail for the chosen occupation codes; many areas show missing data in many SOC codes that will require imputation a hospital-specific version would have more missing data than all-industry
Data accuracy, hourly wages CMS reviews and sends out data for extra provider review, and allows all providers to see other provider submissions Data would be tied to a payroll system which is already heavily reviewed and audited Accurate for large “cells” but subject to sampling error, with some large standard errors in smaller markets and/or less common occupations; hospital-specific estimates have larger standard errors than all-industry estimates. There is some concern over the inability to account for part-time versus full-time employment
Data completeness, other compensation Survey has lines for adding benefits including payroll taxes, health benefits, and pension costs, but there is no requirement to use them; survey does not capture variations in paid time off Payroll tax-related benefits can be added as percentages and/or taxable benefits reported to the IRS could be added, but complete benefit data would still have to be provided through a residual S-3 survey, or coded as an add-on to the annual file Payroll tax-related benefits can be added as percentages and/or taxable benefits reported to the IRS could be added, but complete benefit data would still have to be provided through other BLS regional data or on a residual S-3 survey
Suggested Citation:"Appendix F: Description of Three Optional Sources for Facility Wage Index Data." Institute of Medicine. 2012. Geographic Adjustment in Medicare Payment: Phase I: Improving Accuracy. Washington, DC: The National Academies Press. doi: 10.17226/13138.
×
Characteristics to consider and compare (1) CMS current: IPPS hospital average wage survey (S-3) (2) CMS option—electronically submitted payroll data, dollars, and hours by SOC (3)

BLS option—OES wage surveys
(2A)

All-Part A providers
(2B)

Hospital providers only
(3A)
All-employer average wages
(3B)

Hospital average wages
Data accuracy, other compensation Survey has instructions for adding other forms of compensation; probably some difficulties in measuring pension costs; benefits may not be as accurate as hourly wages Depends on alternative source Depends on alternative source
Data provider specificity Data represent IPPS hospitals only but are used for other hospitals, SNFs, and HHAs (Note: surveys exist for other providers but are not used) Data would come from the specific industry, and be weighted by labor shares for that industry Data still would not reflect prices for other Part A providers Data would come from all-industry wages, but could be weighted by labor shares for each specific industry Data still would not reflect prices for other Part A providers
Representative of the entire labor market Most health care occupations

Some non-health care occupations
Most health care occupations

Some non-health care occupations
Most all occupations Most health care occupations

Some non-health care occupations
Contract labor costs included? Yes No, unless on additional survey No
Adjustment for occupation mix differences Separate study required, and the survey covers only nursing mix differences Fixed occupation weights can be derived from submitted data Fixed occupation weights are available from NAICS-specific national data
Minimizing circularity and sensitivity to individual reporting anomalies A large number of labor markets have only one or two contributing providers Most areas have multiple providers of some level A large number of labor markets will still have only a few contributing hospitals All-industry sampling should eliminate the problem, except in very small labor markets Smaller labor markets will still have few contributing hospitals
Suggested Citation:"Appendix F: Description of Three Optional Sources for Facility Wage Index Data." Institute of Medicine. 2012. Geographic Adjustment in Medicare Payment: Phase I: Improving Accuracy. Washington, DC: The National Academies Press. doi: 10.17226/13138.
×
Characteristics to consider and compare (1) CMS current: IPPS hospital average wage survey (S-3) (2) CMS option—electronically submitted payroll data, dollars, and hours by SOC (3)

BLS option—OES wage surveys
(2A)

All-Part A providers
(2B)

Hospital providers only
(3A)
All-employer average wages
(3B)

Hospital average wages
Auditability Subject to annual review by MACs and audit if requested by CMS Payroll data subject to review by multiple public agencies, and can be reviewed or audited by MAC if requested by CMS Only by BLS staff (not available to stakeholders)
Transparency Average wage data by provider is made available to all providers Provider-level wages by SOC code probably not considered public data, but average occupation-adjusted wage by provider could still be released for provider review Sampling is reviewed by BLS staff, but data cannot be audited by providers or by CMS; missing data issues are also likely to create confusion each year
Administrative burden to CMS Current surveys are time consuming; reviews, audits and appeals are numerous After a one-time investment in coding for fixed-weight indices, the collection and review of data should be manageable; depends in part on the remaining exception processes and/or smoothing techniques No data collection or auditing burden, and a moderate amount of analysis depending on the remaining exception and/or smoothing techniques
Flexibility in defining and/ or smoothing wage markets Yes; access to firm-level data Yes; access to firm-level data Data only available at MSA/ balance-of-state levels, which provide limited opportunity for boundary smoothing

NOTE: BLS = Bureau of Labor Statistics; CMS = Centers for Medicare and Medicaid Services; HHA = home health agency; IPPS = Inpatient Prospective Payment System; MAC = Medicare Administrative Contractor; MSA = metropolitan statistical area; NAICS = North American Industry Classification System; OES = Occupational Employment Statistics; SNF = skilled nursing facility; SOC = Standard Occupational Classification.

Suggested Citation:"Appendix F: Description of Three Optional Sources for Facility Wage Index Data." 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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Suggested Citation:"Appendix F: Description of Three Optional Sources for Facility Wage Index Data." 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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Suggested Citation:"Appendix F: Description of Three Optional Sources for Facility Wage Index Data." Institute of Medicine. 2012. Geographic Adjustment in Medicare Payment: Phase I: Improving Accuracy. Washington, DC: The National Academies Press. doi: 10.17226/13138.
×
Page 182
Suggested Citation:"Appendix F: Description of Three Optional Sources for Facility Wage Index Data." Institute of Medicine. 2012. Geographic Adjustment in Medicare Payment: Phase I: Improving Accuracy. Washington, DC: The National Academies Press. doi: 10.17226/13138.
×
Page 183
Suggested Citation:"Appendix F: Description of Three Optional Sources for Facility Wage Index Data." Institute of Medicine. 2012. Geographic Adjustment in Medicare Payment: Phase I: Improving Accuracy. Washington, DC: The National Academies Press. doi: 10.17226/13138.
×
Page 184
Suggested Citation:"Appendix F: Description of Three Optional Sources for Facility Wage Index Data." Institute of Medicine. 2012. Geographic Adjustment in Medicare Payment: Phase I: Improving Accuracy. Washington, DC: The National Academies Press. doi: 10.17226/13138.
×
Page 185
Suggested Citation:"Appendix F: Description of Three Optional Sources for Facility Wage Index Data." Institute of Medicine. 2012. Geographic Adjustment in Medicare Payment: Phase I: Improving Accuracy. Washington, DC: The National Academies Press. doi: 10.17226/13138.
×
Page 186
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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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