THA Statement on Medicare Hospital Area Wage Index Changes

On August 2, the Centers for Medicare & Medicaid Services (CMS) released its final rule to make significant changes to the Medicare program’s hospital area wage index (AWI). These changes will ensure hospitals are more equitably reimbursed, especially those in rural areas of the country.

The Tennessee Hospital Association (THA) has advocated for reform of the Medicare AWI formula for nearly three decades.

The AWI is a factor in determining Medicare hospital reimbursement and is based on regional wage data. Declining wage indexes, coupled with rising labor costs that continue to increase, have plagued states like Tennessee for years, while benefitting high-wage states like California and New York.

Because of the significant flaws in the AWI formula, Medicare reimbursement for wages in areas like Knoxville and Tri-Cities declined 20 percent since 2000 while salary costs increased by nearly 60 percent. Over the last 10 years, the average AWI for all of Tennessee hospitals has decreased by almost 6 percent, and for rural hospitals, the rural floor has decreased over 10 percent. This represents a total loss for Tennessee hospitals of around $300 million over 10 years.

However, revisions finalized today to the AWI will help increase low wage indexes for four years. while proportionally decreasing higher wage indexes. This means a more equitable AWI for states that have long been disadvantaged by the program.

Following is a statement on these changes from THA President and CEO Craig Becker:

“Today, we applaud the efforts of CMS for taking action to help rural hospitals. These changes will allow Tennessee hospitals, especially those in the eastern and rural parts of the state, identify, hire and keep healthcare professionals, expand patient access to quality healthcare, and continue to provide the most efficient and highest quality care to their communities.

THA thanks CMS for its leadership and Tennessee’s congressional delegation for their unwavering support on this critical issue. We commend CMS Administrator Verma and her staff for creating in these proposals a reasonable path to much-needed relief for many hospitals in states like Tennessee.”