Troubleshooting Challenges With Wage Index Data Reporting

By David J. Andrzejewski, CHFP, and Jay Sutton
| 5/2/2017

Accurately reporting hospital wage index data – and doing so in compliance with Medicare regulations – is critical for allowing the Centers for Medicare & Medicaid Services (CMS) to determine each core-based statistical area’s (CBSA) wage index value share. Each year, acute care inpatient prospective payment system hospitals must file a Medicare cost report. The collected data is a major component used to compute Medicare prospective payments for hospitals. Even a slight fluctuation in an organization’s average hourly wage (AHW) and wage index value potentially can mean significant reimbursement money lost.

In today’s challenging healthcare financial climate, organizations can’t afford to lose out on reimbursement. Therefore, they must make sure they have a thorough understanding of wage index reporting requirements and a system in place for proper collection and reporting of data. In this article, find out how to mitigate some of the biggest challenges of reporting.

Set Aside Time to Plan and Gather Information

The deadline each year for hospitals to update the wage index data that is on file with Medicare generally is around Sept. 1. To meet this deadline, organizations must begin planning well ahead and devote ample time to collecting and analyzing information. Hospital staff in charge of reporting wage index data should begin gathering necessary information early in the year.

Accounting for all changes in an organization’s labor structure is vital to accurate hospital wage index reporting. Two major reporting areas within a hospital that usually have a significant impact on its AHW are payroll and employee benefits. Individuals gathering the data are encouraged to understand operational and policy changes that occur in these areas. They can accomplish this by annually speaking with managers of payroll and other departments. Examples of changes that may make an impact on AHW include revised payroll codes, benefit policy changes, increases in contract labor, and elimination of certain positions.

In general, a good practice is to make sure relevant staff have a clear understanding of all the important deadlines and timelines for CMS reporting (all deadlines are posted on For example, every three years CMS requires hospitals to complete the Occupational Mix Survey, which it uses to determine the types of nursing personnel the hospital hires and the nursing salary portion of the hospital’s total salaries. In 2017, the survey is due July 1. Hospitals should begin planning and gathering information well before the deadlines.

Make Sure Paid Hours Are Correct

Paid hours are one type of wage index data that can be difficult for hospitals to compile due to rather limited cost reporting instructions. Paid hours are reported on worksheet S-3, column 5, part II of the Medicare cost report. Some sources of paid hours include general ledger, labor distribution reports, full-time equivalent reports, and the payroll register.

To accurately compile paid hours data, staff members need to make sure they’re aware of the payroll department’s pay codes and any changes that have been made since the previous year. Pay codes can change, or additional codes can be added from year to year. For example, the organization may have undergone a conversion to a different payroll software, which may have changed the pay codes. Good communication with the payroll department is critical to accurate reporting. Finance or reimbursement personnel should meet annually with the payroll manager to gain a thorough understanding of all pay codes and any recent changes made.

Account for Changes to Benefits

Accurately accounting for all wage-related costs and benefits, such as life insurance and health insurance, can be another trouble spot for hospitals filling out wage index reports. This information is reported on part IV of worksheet S-3.

As many employers across the country continue to make more frequent changes to employee benefits – particularly health insurance – this area of the wage index report can cause trouble if these changes to benefits are not accounted for. Again, open communication with human resources is critical to accurately capturing this data.

Included in this section of the report are retirement costs such as defined benefit and defined contribution pension plans. Rules for reporting defined benefit pension expense changed in 2013, so staff should be familiar with these updated rules. Contributions for a three-year period now must be determined, with the average amount reported.1

Correctly Capture Contract Labor

Part V, "Contract Labor and Benefit Costs," of the S-3 worksheet is perhaps the most challenging section of the report. One particularly complex area concerns administrative and general contract labor and associated fees.

It is important for hospitals to capture all legal, auditing, and consulting fees associated with general contract labor. These fees often are paid to contractors who charge several hundred dollars per hour. Adding those high hourly fees to the hospital’s standard AHW (generally in the $40 to $50 per hour range) can raise the hospital’s overall wage total significantly, which can increase the organization’s reimbursement.

One challenge with capturing this data is some vendors’ invoices will exclude the contractor’s number of hours worked with the corresponding payment. Because paid hours also must be entered into the wage index report, these hours need to be tracked for each contractor. Hospital personnel should work with vendors to make sure the organization is receiving the correct information it needs to report paid hours appropriately.

Consider Outside Help

A lot of little pieces go into hospital wage index data reporting. So that they stay on top of deadlines and CMS requirements, hospitals must remain organized and allow enough time for proper planning, gathering, and reporting of information.

Some organizations may benefit from having a third party annually assess their wage index data reporting or using automated software to assist with accurate reporting. For most hospitals, even a 25 cent difference in the final AHW can provide a significant Medicare reimbursement impact.


1 See “Medicare Program; Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and FY 2012 Rates; Hospitals’ FTE Resident Caps for Graduate Medical Education Payment,” Federal Register, Vol. 76, No. 160, Aug. 18, 2011, pp. 51586-51590,


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