Wage index reporting: What you need to know now – and what to do next

By Jay Sutton, FACHE, CNRA, and David J. Andrzejewski, CHFP
| 5/4/2021
Wage index reporting: What you need to know now – and what to do next
All acute care inpatient prospective payment system hospitals are required to file an annual Medicare cost report to accurately submit their hospital wage index data in compliance with Centers for Medicare & Medicaid Services (CMS) regulations. Hospitals are advised to stay on top of their salary data and overall compensation strategies, especially in an ever-evolving healthcare environment. This article highlights areas that require close attention as hospitals prepare for upcoming wage index reviews and audits, while considering some new effects from the COVID-19 pandemic.
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Start preparing now for FFY23 wage index review and audit

The federal fiscal year (FFY) 2023 review period is currently underway. Hospitals should be aware of key dates and begin gathering the necessary data. CMS will release the initial public use files (PUFs) containing wage index data about each hospital in May 2021. Hospitals should review the PUFs carefully to make sure the data is correct. They have until around Sept. 1, 2021, to file any adjustments to the data that is on file with CMS.

The FFY23 assessment period covers hospital data from Medicare cost reports from Oct. 1, 2018, through Sept. 30, 2019. CMS wage index audits occur every year between Sept. 1 and mid-November. Consider the following steps to prepare for the FFY23 audits and assessments.

Action steps:
  • Develop a plan to file data for future cost reporting periods as correctly as possible.
  • Assign key internal team members from the following departments to share any updated information (for example, new pay codes, benefit and policy changes, and contract labor policies):
    • Payroll
    • Human resources
    • Finance
    • Accounts payable

Be aware of COVID-19’s impact

The effects of the COVID-19 pandemic have touched every area of healthcare, and wage index is no exception. Hospital leaders should pay special attention to the following areas as they gather and report wage index data.

Contract labor. Many hospitals have had to hire additional clinical staff, such as nurses, to help take care of patients during coronavirus surges. Because of this, hospitals may have higher average hourly wages for contract labor versus other types of clinicians during the months when their organizations saw the greatest numbers of COVID-19 patients.

Action steps:
  • Make sure contract labor hours are being tracked consistently.
  • Verify that a process exists for validating all hours and costs.
  • Make sure all invoices and contracts are clear and accurate.

Time off. Hospitals also might have seen an increase in staff time off due to illness or other factors related to COVID-19. Hospitals should be aware that their payroll departments might have used additional pay codes for salaried employees due to time off (for example, leave without pay or leave with pay).

Action step:
  • Confirm with the organization’s payroll director if additional pay codes have been used, and update the wage index report accordingly.

Wage-related costs. These costs include any services the hospital provides to employees at no cost or at a discount. Examples include health services, such as physicals, vaccines, and smoking and weight control programs. These have been included in CMS’ wage index reporting instructions for a long time, but it is a good idea for hospitals to pay additional attention to this area this year, as some organizations might have increased these employee offerings during the pandemic.

Action step:
  • Consider reporting any extra wage-related costs related to the pandemic on the appropriate line in worksheet S-3, Part IV.

Know what the MAC auditors are focusing on

At least every three or four years, the Medicare Administrative Contractors (MACs) will provide a detailed wage index audit to every hospital. For the past several years, MACs have focused more intensely on contract labor and physician costs than they did in previous years.

Action steps:
  • Plan accordingly to make sure data related to contract labor and physician costs is up to date and correct.
  • Make sure physician time studies and contracts are accurate, as these are some of the supporting documents MAC auditors are most likely to request.
    • Physician time studies should reflect updated, clear Part A administrative and Part B professional services time.
  • Work with MACs to make sure the correct information is provided.

Prepare for MAC audit questionnaires and requests

When hospitals receive formal requests for information related to wage index by MAC auditors, they should be aware that sometimes the information requested has already been sent in to CMS by the hospital. In these cases, hospitals should contact their MAC auditors to clarify what is needed and what the hospital already has sent to CMS.

Among requests for information, topics include pension plans (specifically, the difference between defined benefit and defined contribution) and dietary contract labor. Hospitals should be aware of these requests and plan to take action.

Action steps:
  • Make sure the hospital’s cost report clearly delineates the difference between defined benefit and defined contribution, and provide the accurate supporting documents. (Note that starting in FFY23, the carryforward adjustment is no longer applicable.)
  • If the hospital capitalizes any salary expense, make sure the corresponding paid hours are not included for wage index reporting. Conversely, if the capitalized salary expense continues to be reported as salary expense on worksheet A of the cost report, then hours also should be included.
  • Regarding dietary contract labor, MACs have been requesting that hospitals split a portion of the costs for dietary contract labor with the cafeteria cost center, as these cost centers generally provide the same services. Hospitals should use statistics or employee staffing ratios to properly allocate the contract costs.

Making sense of all the data

Medicare wage index reporting can be complicated, especially as hospitals are facing additional challenges due to the COVID-19 pandemic. Hospitals could benefit from working with third-party specialists in this area to help make sure they are tracking and reporting information accurately.

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Jay Sutton
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Dave Andrzejewski
Dave Andrzejewski