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Understanding the Medicare Wage Index

Medicare provides benefits for over 55 million people in the United States; as the population grays, this number ticks steadily upwards. At a time when hospitals and other healthcare providers are seeing an increased number of Medicare patients, they are also experiencing declining levels of reimbursement.

Because of this “gap,” it is incumbent on administrators to maximize reimbursement. Reviewing and reassessing Medicare Wage Index data often provides such an opportunity.

The Medicare Wage Index

When healthcare organizations provide services to Medicare beneficiaries, there is a standardized payment under the PPS, or prospective payment system. This payment is adjusted based on two factors: the patient’s condition and resources required to treat him/her, and the market conditions of the area in which the organization operates. The Wage Index adjusts payments up or down, depending on the cost of labor in an area.

Imagine two hospitals: one is located in the heart of New York City, and the other is located in an isolated rural environment. Each sees Medicare patients. Which should be reimbursed more? The urban hospital which must pay its providers and staff top dollar? Or the rural facility that pays lower wages?

At first glance, it would appear that the Medicare Wage Index would favor the city hospital. But the system is more complex than that. What if that small, rural hospital has to spend exponentially more resources attracting and retaining staff because of its remote location? In this case, its payment may be  adjusted upward.

It is critical that healthcare organizations are properly classified; each 0.010 difference in the wage index is the equivalent of about $70.00 for each Medicare discharge. Keep in mind that the high wage index is approximately 1.8000 and the low wage index is approximately 0.7000. This means that reimbursement differences are significant.

Your organization may be able to reclassify and realize more advantageous reimbursement rates. R-C Healthcare Management can help you with this complex process.

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