The Health Care Financing Administration (HCFA) recently announced that it is considering changes that would make it easier for rural hospitals to qualify for geographic reclassification for purposes of the wage index used to adjust Medicare payments for area labor cost differences. If finalized, this change could significantly improve Medicare payments for many rural providers.
The Medicare geographic reclassification process permits a hospital to seek to be reclassified from the area in which it is physically located to another proximate area for purposes of its wage index, as well as for other payment components. For example, a hospital located in rural Ohio may seek to be reclassified to the Columbus, Ohio Metropolitan Statistical Area for purposes of its wage index. If the hospital qualifies, it would receive the higher Columbus wage index, which in fiscal year 1999 would have meant an increase in the wage index used to adjust payments from .8649 to .9907. Multiplied by a hospital’s total number of Medicare discharges and services, wage index reclassification could be advantageous from a Medicare reimbursement perspective, especially considering that HCFA is planning to use a hospital’s reclassified wage indx to adjust hospital outpatient department services when it implements the new prospective payment system for those services in July of this year.
Generally speaking, a hospital must satisfy three tests to qualify for geographic reclassification. Two of the tests involve comparing the applicant hospital's average hourly wages to those of other hospitals in its geographic area and to hospitals within the area to which the applicant seeks to be reclassified. HCFA is proposing to lower the thresholds for those two tests for hospitals in rural areas from 108 to 106 percent and from 84 to 82 percent, respectively. If finalized, it is anticipated that many more rural hospitals would be able to qualify for wage index geographic reclassification.
Applications for Medicare reclassification, including wage index, for federal fiscal year 2002 must be received by the Medicare Geographic Classification Review Board (MGCRB) by September 1, 2000. Applications will be available in the beginning of July on the MGCRB’s website at: http://www.hcfa.gov/regs/mgcinfo.htm.