CMS wants to stabilize hospice wage index

SimiTree financial consultants say a proposal by the Centers for Medicare and Medicaid Services (CMS) could stabilize annual fluctuation in the hospice wage index, helping hospices more effectively budget and plan their operations.

Beginning Oct. 1, FY2O23, CMS wants to apply a permanent 5-percent cap on any decrease to a geographic area’s wage index from its wage index in the previous year, regardless of the circumstances causing the decline.

The 5-percent cap would take effect Oct. 1 and would remain in effect for subsequent years.

“This is how CMS proposes to mitigate the negative impact of year-to-year changes in hospice payments related to changes in the hospice wage index,” said SimiTree Financial Director Brian Harris. “Changes each year can make it challenging for hospices to adequately plan ahead, and can make budgeting particularly difficult.

“The 5-percent cap is a way to introduce a little more stability to process,” he said. “A geographic area’s wage index would never be less than 95 percent of its final wage index calculated in the prior year, regardless of whether the geographic area is part of an updated Core-Based Statistical Area (CBSA).”

The hospice wage index cap was set out in the FY2022 Proposed Rule for Hospice.

Harris said other important points included in the proposal are:

The 5-percent cap would be applied after the application of the hospice wage index floor.
Pre-floor, pre-reclassified hospital wage index values below 0.8 would be adjusted by the 15 percent increase, subject to a maximum wage index value of 0.8.
If there is a 5 percent decrease from the previous FY’s wage index value after the application of the hospice wage index floor, then the 5-percent cap on wage index decreases would also be applied.

There’s a reason for the 5%

Harris said CMS reviewed past wage index fluctuation to come up with the amount of the proposed cap.

“Historically, the year-to-year variation in the hospice wage index has been within 5-percent, and CMS said based on that data, it believes a 5-percent cap will be an effective safeguard against any significant wage index decreases,” he said.

CMS previously imposed a 5-percent cap on wage index decreases for FY 2021, the same year it adopted the most recent revisions to metropolitan statistical areas by the Office of Management and Budget. In general, the Office of Management and Budget issues major revisions to statistical areas every 10 years, based on the results of the decennial census. However, OMB occasionally issues minor updates and revisions to statistical areas at other times.

The hospice wage index is used to adjust payment rates for hospices under the Medicare program to reflect local differences in area wage levels, based on the location where services are furnished. Significant changes to labor market areas by the OMB can impact hospice finances.

Although CMS imposed a cap in FY 2021, no cap was applied to wage index decreases for FY 2022.

“CMS said it thought the transition approach struck an appropriate balance, giving providers time to adjust to new labor market area delineations and wage index values,” Harris said.

CMS pays hospices for four specific categories of covered hospice care routine home care: continuous home care (CHC), routine home care (RHC), inpatient respite care (IRC), and general inpatient care (GIP). Labor shares for these categories were rebased in the FY2022 Final Rule.

CMS determines the base rates for each type of hospice care, and payment amounts are based on the statistical area here the service was furnished. Each CBSA is assigned a wage index that reflects local geographical differences in wage levels. Payment is determined when the wage index is added to the payment calculation for each service.

SimiTree can help

SimiTree’s financial consultants understand that profitability depends on being able to make accurate projections. We work with home health and hospice agencies of all sizes to improve forecasting and develop stronger budgeting processes. We show organizations how to effectively find and use the right data to sharpen long-term vision, streamline processes, improve efficiencies, and achieve sustainable profitability. Use the contact form below to reach out to us today with your questions, and let’s work together to make your organization stronger and healthier overall.