Chart Review: Impacts of Potential Fixes to the Hospital Wage Index

Jackson Hammond, Health Care Policy Analyst 

To account for differences in cost based on geography, Medicare adjusts hospital reimbursements using two formulas, the Hospital Wage Index (HWI) and the Geographic Practice Cost Indices (GPCIs). Unfortunately, these indices are flawed and fail to accurately account for geographic variations, but attempts to better calculate for geography raise their own challenges, as discussed in a recent AAF primer. One solution is to change the data source of the HWI from hospital cost data to the Bureau of Labor Statistics’ Occupational Employment and Wage Statistics (BLS’ OEWS) data. The chart below demonstrates the potential HWIs this change would bring to high-cost areas, including the San Francisco, Los Angeles, Seattle, Boston, Washington, D.C., and New York City metropolitan statistical areas (MSAs). The calculations determined the average hourly wage for all health workers based on BLS’ OEWS data from May of 2020, the latest available. Of note, this chart shows there would likely be a significant decrease in the HWI for the San Francisco MSA (-21.59 percent) and substantive decreases for New York City (-13.02 percent), Boston (-10.85 percent), and Los Angeles (-7.98 percent), but a slight increase for Washington, D.C. (4.45 percent), and Seattle (2.12 percent). As a previous AAF analysis noted, both the San Francisco and Seattle MSAs already face substantial negative margins for Medicare Part A, at -41.2 percent and -27.7 percent, respectively. Based on the above calculations, a switch to BLS’ OEWS data may worsen these negative margin problems for several high-cost regions, but ease them somewhat for others. This may be true for several reasons, but ultimately, more study is needed to determine why two MSAs with high-margin losses would have different outcomes under a new system that used BLS’ OEWS data.

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