Wage Index: Defining It and Understanding Yours

Most everyone knows the saying, “Keep your friends close and your enemies closer.” In the world of health care, we don’t really have enemies per se, but we definitely have competitors. It is important to stay in touch with competitors for various reasons, such as:

  • You may benefit from understanding their perspective and/or ideas on a subject
  • You may need to work together someday
  • You may have shared interests if you dig deep enough

A practical application of this concept is the wage index. The index is an adjustment for differences in hospital wage rates among labor markets. It is computed using individual hospital data that is then compared to metropolitan statistical area (MSA) or statewide rural area to the nationwide average.

Since the inception of a Prospective Payment System (PPS) for Skilled Nursing Facilities (SNF), hospital wage data has been used to develop a wage index to be applied to SNFs. The SNF PPS wage index values for any fiscal year are calculated from the same data used to compute that fiscal year’s acute care hospital inpatient wage index data.

Tip #8:

Educate yourself on what your own wage index ratio is and how it compares to your marketplace, your state and the national average.

You should also consider establishing a task force among the hospitals and SNFs in your area to analyze how each other are reporting their wage data and if there are ways you can enact change that would result in an improved index.

Guidance is available on the Centers for Medicare and Medicaid Services (CMS) website:

Medicare Wage Index home page

Questions? Please contact Marie White at 612.253.6546 or mewhite@eidebailly.com.

 

 

What a “Happy Meal” Has in Common With Overhead Costs

fast food isolated on white backgroundWhen you order a combo meal at a fast-food restaurant, the bill is for a sandwich, side and drink. You don’t get charged separately for the lettuce, tomato, pickles, ketchup, wrapper, carton and cup. The same concept applies to a hospital. If you get an X-ray, you’re charged for the X-ray. There’s not a separate charge for the registration clerk, the technician who performs the test, the electricity that was used to run the equipment, etc. However, all of these things—and many more—are costs that are necessary in operating a hospital.

These overhead costs must be assigned to the various patient care-related service lines of the hospital. This is done through the use of overhead allocation statistics. The regulations have several different options for assigning the costs, as well as options for the statistics that can be used.

Tip #9:

Periodic time studies, in lieu of ongoing time reports, may be used to allocate direct salary and wage costs of overhead departments (Pub 15-1, §2313).

There are specific criteria for the time studies in section 2313. You should familiarize yourself with the criteria and periodically review the time studies of your hospital to ensure they are in compliance.

Further guidance is available on the Centers for Medicare and Medicaid Services (CMS) website:

Provider Reimbursement Manual

Questions? Please contact Marie White at 612.253.6546 or mewhite@eidebailly.com.

 

 

Constantly Changing: Departments and Organizational Structures

HeraclitusHeraclitus was an ancient Greek philosopher who lived about 150 years before Aristotle and the quote “The only thing that is constant is change” is attributed to him. If we use Heraclitus’s philosophy as a guide, change is not only something we must accept, but it’s actually something to celebrate. Heraclitus saw the world as a system in flux, but in his view that’s what keeps the world the same, in a sense.

In a modern setting, the same can be said of health care as new drugs, treatments, and technology are constantly being introduced. And as hospitals and other health care providers embrace these innovations, the result is often new departments and organizational structures.

Tip #7

All new material accounts/departments should be identified, reviewed and discussed to ensure proper reporting (Pub 15-1, §2302.8)

Further guidance is available on the Centers for Medicare and Medicaid Services (CMS) website:

Provider Reimbursement Manual 15-1

Questions? Please contact Marie White at 612.253.6546 or mewhite@eidebailly.com.