Geographic Adjustment in Medicare Payment: Phase I: Improving Accuracy (2012)

Chapter: Appendix F: Description of Three Optional Sources for Facility Wage Index Data

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(1)
CMS current: IPPS hospital average wage survey (S-3)

(2)
CMS option—electronically submitted payroll data, dollars, and hours by SOC

(3)

BLS option—OES wage surveys

(2A)

All-Part A providers

(2B)

Hospital providers only

(3A)
All-employer average wages

(3B)

Hospital average wages

Description and sources

“CMS Hospital Wage Index,” computed from annual aggregate average hospital wages, adjusted to remove wages from non-IPPS subproviders and to add benefits and contract labor; further adjusted every 3 years to account for variation in nursing occupation mix. Average wage data are obtained from the annual Medicare cost reports; occupation mix adjustments are computed from a separate tri-annual hospital nursing survey

“CMS Part A Wage Index,” computed for each type of provider, or for hospitals only. Annually submitted data would include total wages and total hours paid, aggregated at the SOC level, and will be submitted directly from annual payroll files. Average wages could be computed across all health care providers, or separately by type of reporting provider (e.g., hospitals, SNFs, HHAs)

“BLS Part A Wage Index,” using BLS reported average wages for a set of health care occupation codes. Data can be captured by occupation code across all industries, across health care industries only, or by health care sector (e.g., hospitals, SNFs, HHAs)

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Previous Chapter: Appendix E: Comparison of the Medicare Payment Advisory Commission (MedPAC) and Institute of Medicine (IOM) Proposals for Alternative Hospital Wage Indexes (HWIs)

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Suggested Citation: "Appendix F: Description of Three Optional Sources for Facility Wage Index Data." Institute of Medicine. 2012. Geographic Adjustment in Medicare Payment: Phase I: Improving Accuracy. Washington, DC: The National Academies Press. doi: 10.17226/13138.

Appendix F

Description of Three Optional Sources for Facility Wage Index Data

TABLE F-1 Description of Three Optional Sources for Facility Wage Index Data

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	(1) CMS current: IPPS hospital average wage survey (S-3)	(2) CMS option—electronically submitted payroll data, dollars, and hours by SOC		(3) BLS option—OES wage surveys
		(2A) All-Part A providers	(2B) Hospital providers only	(3A) All-employer average wages	(3B) Hospital average wages

Calculation	Relative wages are computed from facility-level data aggregated by MSA and state non-MSA	Relative wages would be computed from facility-level data aggregated by MSA and state non-MSA, or could be aggregated to hospital-specific areas (e.g., nearest neighbor)	Data are available by MSA and multiple “balance-of state” non-MSA areas; facility-specific data are not available

Occupation weights	Added as adjustment to hospital-level average wage	Fixed weight (Laspeyres type) based on submitted data by facility type	Fixed weight (Laspeyres type) based on national employment shares by industry sector

Suggested “Scoring” on Specific Desirable Characteristics

Characteristics to consider and compare	(1) CMS current: IPPS hospital average wage survey (S-3)	(2) CMS option—electronically submitted payroll data, dollars, and hours by SOC	(3) BLS option—OES wage surveys
		(2A) All-Part A providers	(2B) Hospital providers only	(3A) All-employer average wages	(3B) Hospital average wages

Timeliness	4-year lag from reported wage data to applied index	Potentially as little as a 1-year lag if facilities submit payroll data at the end of the calendar year	Data are from 3 to 5 years old when applied to index (due rolling sample method)

Volatility	Data are unstable year to year due to large numbers of one- and two-hospital markets	Likely to be improved over S-3 survey data, because more providers are contributing data to any given market	Some improvement over S-3 if data are collected from all hospitals rather than IPPS only, but still suffers from small numbers within many markets	Found to be less volatile in testing; likely due to rolling sample method and all-employer data	The sample sizes for hospital-only respondents are likely to be too small for stability

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Characteristics to consider and compare	(1) CMS current: IPPS hospital average wage survey (S-3)	(2) CMS option—electronically submitted payroll data, dollars, and hours by SOC		(3) BLS option—OES wage surveys
		(2A) All-Part A providers	(2B) Hospital providers only	(3A) All-employer average wages	(3B) Hospital average wages

Reporting burden (to providers)	Annual S-3 and tri-annual occupation mix surveys have many exceptions, and often require manual input	One-time burden on providers to load OES occupation categories; after that reporting is a once/ year electronic file with individual employee hours and pay or summed by OES group		No added burden to hospitals

Data completeness, hourly wages	All IPPS providers submit data, and nearly all submit the occupation mix survey	Assuming all providers would be required to submit data for complete payroll		Depends on the level of detail for the chosen occupation codes; many areas show missing data in many SOC codes that will require imputation a hospital-specific version would have more missing data than all-industry

Data accuracy, hourly wages	CMS reviews and sends out data for extra provider review, and allows all providers to see other provider submissions	Data would be tied to a payroll system which is already heavily reviewed and audited		Accurate for large “cells” but subject to sampling error, with some large standard errors in smaller markets and/or less common occupations; hospital-specific estimates have larger standard errors than all-industry estimates. There is some concern over the inability to account for part-time versus full-time employment

Data completeness, other compensation	Survey has lines for adding benefits including payroll taxes, health benefits, and pension costs, but there is no requirement to use them; survey does not capture variations in paid time off	Payroll tax-related benefits can be added as percentages and/or taxable benefits reported to the IRS could be added, but complete benefit data would still have to be provided through a residual S-3 survey, or coded as an add-on to the annual file		Payroll tax-related benefits can be added as percentages and/or taxable benefits reported to the IRS could be added, but complete benefit data would still have to be provided through other BLS regional data or on a residual S-3 survey

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Characteristics to consider and compare	(1) CMS current: IPPS hospital average wage survey (S-3)	(2) CMS option—electronically submitted payroll data, dollars, and hours by SOC		(3) BLS option—OES wage surveys
Characteristics to consider and compare		(2A) All-Part A providers	(2B) Hospital providers only	(3A) All-employer average wages	(3B) Hospital average wages

Data accuracy, other compensation	Survey has instructions for adding other forms of compensation; probably some difficulties in measuring pension costs; benefits may not be as accurate as hourly wages	Depends on alternative source	Depends on alternative source

Data provider specificity	Data represent IPPS hospitals only but are used for other hospitals, SNFs, and HHAs (Note: surveys exist for other providers but are not used)	Data would come from the specific industry, and be weighted by labor shares for that industry	Data still would not reflect prices for other Part A providers	Data would come from all-industry wages, but could be weighted by labor shares for each specific industry	Data still would not reflect prices for other Part A providers

Representative of the entire labor market	Most health care occupations Some non-health care occupations		Most health care occupations Some non-health care occupations		Most all occupations	Most health care occupations Some non-health care occupations

Contract labor costs included?	Yes	No, unless on additional survey		No

Adjustment for occupation mix differences	Separate study required, and the survey covers only nursing mix differences	Fixed occupation weights can be derived from submitted data		Fixed occupation weights are available from NAICS-specific national data

Minimizing circularity and sensitivity to individual reporting anomalies	A large number of labor markets have only one or two contributing providers	Most areas have multiple providers of some level	A large number of labor markets will still have only a few contributing hospitals	All-industry sampling should eliminate the problem, except in very small labor markets	Smaller labor markets will still have few contributing hospitals

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Characteristics to consider and compare	(1) CMS current: IPPS hospital average wage survey (S-3)	(2) CMS option—electronically submitted payroll data, dollars, and hours by SOC		(3) BLS option—OES wage surveys
		(2A) All-Part A providers	(2B) Hospital providers only	(3A) All-employer average wages	(3B) Hospital average wages

Auditability	Subject to annual review by MACs and audit if requested by CMS	Payroll data subject to review by multiple public agencies, and can be reviewed or audited by MAC if requested by CMS		Only by BLS staff (not available to stakeholders)

Transparency	Average wage data by provider is made available to all providers	Provider-level wages by SOC code probably not considered public data, but average occupation-adjusted wage by provider could still be released for provider review		Sampling is reviewed by BLS staff, but data cannot be audited by providers or by CMS; missing data issues are also likely to create confusion each year

Administrative burden to CMS	Current surveys are time consuming; reviews, audits and appeals are numerous	After a one-time investment in coding for fixed-weight indices, the collection and review of data should be manageable; depends in part on the remaining exception processes and/or smoothing techniques		No data collection or auditing burden, and a moderate amount of analysis depending on the remaining exception and/or smoothing techniques

Flexibility in defining and/ or smoothing wage markets	Yes; access to firm-level data	Yes; access to firm-level data		Data only available at MSA/ balance-of-state levels, which provide limited opportunity for boundary smoothing

NOTE: BLS = Bureau of Labor Statistics; CMS = Centers for Medicare and Medicaid Services; HHA = home health agency; IPPS = Inpatient Prospective Payment System; MAC = Medicare Administrative Contractor; MSA = metropolitan statistical area; NAICS = North American Industry Classification System; OES = Occupational Employment Statistics; SNF = skilled nursing facility; SOC = Standard Occupational Classification.