The American Hospital Association (AHA) has appointed a committee to study the effects of the Medicare area wage index, which "hospitals and policy makers agree does not function optimally," reports AHA News Now.
The wage rate is used to adjust both inpatient and outpatient payments for more than 3,400 prospective payment hospitals. Payments are adjusted upward for hospitals located in regions that have higher labor costs.
However, the AHA issued a series of statements and data packs last week that it claims show the flaws in this system. For example, it cites a four-year time lag in taking data from cost reports and including them in the wage index.
It also noted that the index is highly volatile, resulting in large swings in payments over a relatively short time period, and that nearly 40 percent of hospitals can retain a reclassification based on geographic or other factors. Moreover, a dwindling number of hospitals are being used to calculate the payment floor for rural facilities.