Some hospitals underpaid due to faulty Medicare wage index

The HHS Office of Inspector General found "significant vulnerabilities" in the Medicare wage index, leading to an estimated $140.5 million in improper payments from just five of its most recent reviews of hospital wage data.

The OIG has conducted 41 reviews of hospital wage data from 2004-17, according to a recent OIG report. Hospitals self-report wage data to help create area wage indexes, which ensure hospitals are paid relative to local labor prices. The wage index is budget-neutral, so the OIG findings indicate some hospitals benefited from the estimated $140.5 million in overpayments, while others were underpaid by approximately the same amount.

The OIG report details the following four main issues with the Medicare wage index:   

  • Hospitals sometimes report inaccurate or incomplete wage data, and CMS has no way to penalize them for it unless the data was purposefully falsified or misrepresented.
  • The limited reviews of hospital-submitted data are not enough to root out inaccuracies.
  • A provision called the "rural floor," which requires area wage indexes of urban hospitals to be greater than or equal to those of rural hospitals, creates inaccuracies.
  • Another set of provisions called the "hold-harmless" provisions, which prevent hospitals from having a lower wage index if geographic groupings of hospitals change, also decrease accuracy.

The report recommends HHS and CMS start penalizing hospitals for any instance of inaccurate or incomplete data, consider reforming the index or repeal the problematic provisions, and work to create a data auditing system. 

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