The reason, Mr. Timcho says, has to do with the Medicare Wage Index, which has thrown Western Pennsylvania hospitals into a downward spiral of lower wages and lagging reimbursement rates for most of the decade.
The problem is a chicken-or-egg phenomenon. The wage index for western Pennsylvania is low because the area’s hospital wages, as measured by Medicare, have been falling, and the region’s hospital wages are low because the lower wage index provides less money for hospital wages. And on and on it goes.
This trend, called “circularity,” has been plaguing Western Pennsylvania for nine years. The Hospital Council of Western Pennsylvania reports that the same problem has reduced reimbursements for other hospitals in Ohio, Virginia, Michigan, Florida and Upstate New York.
The wage index was supposed to account for the higher cost of living in urban areas, but that function seems to have backfired. The index for Pittsburgh is now lower than in rural Iowa, North Carolina and Wyoming, according to the Hospital Council of Western Pennsylvania. UPMC Health System in Pittsburgh has the same wage index as rural Kansas.
The hospital council calculates that the wage index has actually fallen for member hospitals since 2001, taking away more than $300 million in Medicare funding for Pittsburgh-area hospitals alone. While the average salary for employees of those hospitals was 77 cents below the national average in 2000, now it is $4.68 less.
Pinpointing the causes
To determine why the index has been dropping and what can be done about it, the council formed a steering committee last year composed of member executives like Mr. Timcho. While the index is based on hospital wage reports, CMS has not revealed the precise formula and the steering committee needed to investigate the matter. Mr. Timcho said it came away with several plausible explanations of what happened:
- Western Pennsylvania hospitals are less likely to outsource lower-paying jobs, such as housekeeping and food handling, than hospitals in other areas. Since outsourced jobs are not counted in the index’s formula, the outsourcing hospitals have a higher average wage.
- Area hospitals are less likely to have employed physicians, and the lack of these higher-paid employees pulls down the index.
- Aliquippa Hospital, which has closed, failed to submit wage information, so surveyors simply entered “$10 per hour” as the average wage, bringing down the region’s average by $3 million.
Mr. Timcho says the hospital council has offered to audit CMS’ formula for the index to help pinpoint the problem, but CMS has not responded, so for now, at least, the formula is “a black box.”
Coming up with solutions
The Medicare Payment Advisory Commission agrees that the current wage index is flawed and has recommended changes, but those changes have been slow in coming.
While MedPAC recommends using data from the U.S. Bureau of Labor Statistics, such as workers’ salaries, geographic cost of living and geographic cost of treatment, CMS has not taken action on the recommendations. So the council is now working with Pennsylvania’s congressional delegation to try to include changes in the index in health reform legislation.
The health reform bill that recently passed the U.S. House calls for a study of the index. Meanwhile, the Senate bill would instruct CMS to create a more equitable formula but not until Dec. 31, 2011. In the interim, the council proposes establishing a floor to the wage index so that it doesn’t erode further.
Proponents admit that any change in the wage formula would not help hospitals that benefit the most from the current system. Since no one is expecting more money to fund increases in the wage index, increases for hospitals that have been underpaid would have to be made up by slightly lowering the amount of money paid to all other hospitals.
Learn more about the Hospital Council of Western Pennsylvania.
