The Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA), enacted in December 2000, made several important changes that affected wage index geographic reclassification. On May 4, 2001, the Health Care Financing Administration (HCFA) published proposed regulations to implement these changes. This On the Subject . . . summarizes these rules and describes how they might affect hospital reclassification strategies for federal fiscal year (FFY) 2002 and beyond.
Three-Year Reclassification for Wage Index Purposes
BIPA provided that a decision by the Medicare Geographic Classification Review Board (MGCRB) to reclassify a hospital for purposes of its wage index will be effective for three years, rather than the current one-year duration. This provision became effective starting with reclassifications for FFY 2001. As such, a hospital that qualified for geographic reclassification for purposes of its wage index for FFY 2001 (i.e., October 1, 2000 through September 30, 2001) will continue to be treated as reclassified for wage index purposes for FFYs 2002 and 2003. A hospital that qualified for geographic reclassification for purposes of its wage index for FFY 2002 will continue to be treated as reclassified for its wage index through FFY 2004.
The proposed rule is ambiguous concerning a hospital that qualified for geographic reclassification for both FFYs 2001 and 2002 to the same area. While the preamble suggests that HCFA will count three years beginning with FFY 2002, HCFA officials have informed us that they have not clarified whether they will begin counting the three-year period with FFY 2001 or FFY 2002.
HCFA has proposed a different approach for hospitals that were reclassified for FFYs 2001 and 2002 to different areas. In this instance, HCFA would deem a hospital to be reclassified to the area for which it applied for FFY 2002, unless the hospital elects to extend the wage index reclassification it was granted for FFY 2001. A hospital might wish to withdraw its reclassification if the area to which the hospital expects to be reclassified for FFY 2002 would now have a lower wage index than the area to which the hospital was reclassified for FFY 2001. Hospitals desiring to withdraw requests for reclassification for FFY 2002 must do so by written request to MGCRB by June 18, 2001.
Currently, a hospital may withdraw its request for reclassification at any point prior to the issuance of the MGCRB decision and cancel a MGCRB reclassification decision within 45 days of the publication of HCFA's annual notice of proposed rulemaking concerning changes to the inpatient hospital prospective payment system (PPS) and payment rates for the fiscal year for which the application was filed. Because the rulemaking concerning changes to the inpatient PPS for FFY 2002 was published on May 4, 2001, the deadline for canceling an MGCRB reclassification decision for FFY 2002 is June 18, 2001.
One reason why a hospital might wish to withdraw its reclassification is if the area to which it sought reclassification has a lower wage index than the area in which the hospital is physically located. We encourage all hospitals to make this comparison.
HCFA is proposing to continue this same timetable for withdrawing and canceling requests for reclassification under the three-year reclassification period and to allow hospitals the opportunity to cancel an approved reclassification for one or more years of the three-year reclassification period. For example, a hospital qualifying for wage index geographic reclassification for FFYs 2001, 2002 and 2003 would be able to cancel the reclassification for the balance of the reclassification period beginning in FFY 2002 or 2003. Such hospital would have to notify MGCRB within the 45-day period for that upcoming year.
Additionally, a hospital that elects to withdraw its reclassification for any year within the three-year period would be able to later request that MGCRB reinstate its reclassification for the remaining years. For example, a hospital that properly requested cancellation for FFYs 2002 and 2003 could subsequently have its reclassification reinstated for FFY 2003. The request must be made to the MGCRB during the application cycle for the fiscal year for which reinstatement is sought. For example, a hospital that canceled its FFY 2002 and 2003 wage index reclassifications before June 18, 2001, which then wishes to restore its reclassification for FFY 2003, would have to make such a request to MGCRB by September 4, 2001 (the date on which reclassification applications for FFY 2003 are due).
Hospitals canceling wage index geographic reclassification for either of the first two years of a three-year reclassification cycle should consider preserving options in future years by requesting, as part of the annual MGCRB process, that the reclassification be reinstated for the next fiscal year, even though the hospital will not at that time know the applicable wage indices until the following May. If the hospital subsequently determines that the wage index for the area to which the hospital reclassified has a lower proposed wage index than the area in which the hospital is physically located, or that reclassification is otherwise undesirable, it likely will be able to later again withdraw the reclassification during the 45-day period following publication of the annual proposed PPS update.
HCFA proposes to apply the three-year extension only to reclassifications for purposes of the wage index; it would not apply to those for the standardized amount. Hospitals seeking standardized amount reclassification would be required to reapply on an annual basis.
HCFA proposes to extend the three-year extension to group reclassifications. Such requests must satisfy reclassification criteria for both wage index and standardized amount. Qualifying hospitals will be reclassified for three-years for purposes of the wage index but only one year for purposes of the standardized amount.
A hospital would not be permitted to extend a three-year reclassification by subsequently applying for reclassification to the same area for purposes of the wage index for a fiscal year that would be within the three-year period. However, a hospital may during the three-year period, apply for reclassification to a different area and, if successful, be reclassified to that different area for three years.
Three-Year Average Hourly Wages
BIPA also provided that beginning with applications for FFY 2003, MGCRB is required to evaluate requests for wage index reclassification using hospital and area average hourly wage (AHW) data from the average of the most recent three years of published wage data. HCFA intends to calculate the three-year averages by dividing the sum of the dollars (adjusted to a common reporting period, if necessary) across all three years by the sum of the hours. If a hospital is missing data for any of the previous three years, its AHW for the three-year period is calculated based on the data available during that period. Table 2 of HCFA's proposed rule shows the proposed three-year averages for all hospitals, as well as hospitals' AHWs for each of the three years. Tables 3A and 3B show the three-year AHWs for urban and rural areas, respectively.
The rules described above are proposals and will not be effective until after HCFA publishes them in final form, which will likely be August 1, 2001. Hospitals wishing to comment on aspects of these proposed rules should send one original and three copies of their comments to the Health Care Financing Administration, Department of Health and Human Services, Attention: HCFA-1158-P, P.O.Box 8010, Baltimore, Maryland, 21244-1850. Comments must be received by the HCFA by July 3, 2001.
Additional details concerning the proposed rule may be found in the May 4, 2001, Federal Register, which is available at http://www.access.gpo.gov/su_docs/.