8 Questions About Proposed Changes to Rural Floor Wage Index

The policy change is expected to significantly raise the wage index in several states.

The Centers for Medicare and Medicaid Services is proposing a policy change for the rural floor wage index in 2024 that could have profound financial effects on urban and rural hospitals across the nation, one expert says.

Under the proposal CMS would treat hospitals with rural classifications the same as geographically rural hospitals when calculating the wage index. The policy change is expected to significantly raise the wage index in several states, according to Health Law News.

While that in itself is not necessarily problematic, the Social Security Act mandates the "Rural Floor Budget Neutrality Adjustment", which prohibits increases in overall Medicare payments.  

Milwaukee-based healthcare regulatory expert Joe Krause, an attorney with Hall, Render, Killian, Heath & Lyman, P.C., took time this week to answer some questions about the proposed change in the policy, and how it will affect providers.

1. What does the proposed rule do?

For the Medicare Program, the wage index applicable for any hospital located in an urban area of a state may not be less than the wage index applicable to hospitals located in rural areas. This is known as the "rural floor.”

In the Proposed Rule, CMS is proposing to change its policy for the rural floor to treat hospitals with rural reclassification (also known as §401 or §412.103 rural reclassification), the same as geographically rural hospitals for purposes of calculating the wage index. Specifically, CMS would include hospitals with §412.103 rural reclassifications and geographically rural hospitals in rural wage index calculations beginning with FY 2024. By doing this, CMS has significantly increased the rural wage index factor for several states, which would also increase the wage index for lower urban areas of the state.

2. When does it take effect?

The rule would impact the calculation of the wage index starting with inpatient payments on 10/1/23 and outpatient payments on 1/1/24.

3. What chance does it have to be adopted?

That is hard to say. Ordinarily, a change this big would get finalized unless there is a good basis (legal or otherwise) for CMS to change its decision.

4. Do you believe it will see significant changes after the public comment period?

No, I think the proposed rule will either be adopted or not adopted, in which case CMS would keep the existing rule in place. I don’t foresee an in-between.

5. How does it differ from the existing rule. 

Currently, CMS only includes the impact of rural reclassified hospitals in the rural floor calculation if the hospital stays in the rural location. For various reasons, most hospitals that obtain rural reclassification subsequently reclassify out of the rural wage index area to an urban area and are not currently included in the rural floor calculation.

6. Why does CMS think this proposed rule is was necessary?

CMS commentary for this proposed change went through the rural floor policy and recent court decisions that address how CMS treats rural reclassified hospitals for different purposes. Based on that discussion, CMS proposed to reinterpret the rural floor calculation and how they treat rural reclassified hospitals under that calculation.

7. How will this proposed rule affect providers?

As stated above, this proposed change will significantly increase the rural wage index in many states, which would also increase the wage index for certain urban areas of the state. The Medicare Hospital Inpatient Prospective Payment System ("IPPS”) and Outpatient Prospective Payment System ("OPPS”) adjust a standardized amount for differences in hospital wage levels, which CMS implemented through the wage index system. If hospitals see their wage index go up by this policy, that would lead to increased Medicare payments.

However, the Social Security Act requires that the rural floor policy be budget neutral. Increases in wage index from this policy change cannot increase overall Medicare payments. CMS maintains budget neutrality of the rural floor through an adjustment known as the "Rural Floor Budget Neutrality Adjustment,” which is applied to the wage index of all hospitals. Some hospitals would see an increase in wage index and Medicare payments due to this policy change, while others would see a decrease because of the budget neutrality adjustment. But overall, Medicare payments will remain the same. This changes how the pie is divided up.

8. What should hospitals do to accommodate or oppose this new rule?

Hospitals should consider submitting comments to CMS as to whether they support or oppose this change and those comments are due by June 9th. Hospitals should also let their hospital association know if they support or oppose it.