The Inpatient Prospective Payment System (IPPS) final rule for federal fiscal year 2011 published in the August 16, 2010, Federal Register included changes related to the wage index and related geographic reclassifications. Its wage index provisions did not change significantly from the proposed rule. The primary emphasis of the wage index changes this year relates to incorporating changes from the Affordable Care Act (ACA). Key provisions include:

• Change in Reclassification Criteria – The FY2009 IPPS final rule began phasing in higher thresholds for hospitals to qualify for reclassification by the Medicare Geographic Classification Review Board (MGCRB). The ACA returned the criteria to pre-FY2009 levels, and this change was effective for reclassifications to be effective for FY2011. Those reclassification applications had to be filed by September 1, 2009. The final rule states only hospitals that had previously requested to be reclassified, and failed to meet the higher criteria but now meet the revised lower criteria, would be granted these previously filed requests for FY2011. Hospitals should carefully evaluate their options with regard to reclassification. Requests for reclassification for FY2012 are due to the MGCRB by September 1, 2010.

• Budget Neutrality Adjustment – The FY2009 IPPS rule also changed the budget neutrality adjustment (BNA), gradually moving from a nationally computed adjustment to a state-specific adjustment by FY2011. However, the ACA returned the BNA to a nationally computed adjustment starting in FY2011. This is favorable to states with a low state-specific BNA because of urban areas subject to the rural floor.

• Frontier States – The final rule includes a provision to establish a wage index of at least 1.0 for frontier states. For FY2011, the frontier states are Montana, Wyoming, North Dakota, Nevada and South Dakota.

• Section 508 – Section 508 of 2003 legislation commonly called the Medicare prescription drug bill established special reclassification provisions, which had been extended only through FY2009. The ACA extended these provisions through 2010. Since they expire September 30, 2010, the final rule notes that they will not be applicable to FY2011.

• Occupational Mix Survey – The Centers for Medicare & Medicaid Services (CMS) will continue to use the 2007-08 occupational mix survey (OMS) for FY2011 for the occupational mix adjustment factor. As a reminder, there will be a new OMS required for FY2013 based on data collected for the 2010 calendar year. This OMS is due July 1, 2011.

• Wage Index Methodology – The final rule included no significant changes to the CMS methodology used to compute the wage index for FY2011. With regard to the future of the wage index, the ACA requires the secretary of Health and Human Services to report recommendations to Congress by December 31, 2011, taking into consideration the original intent of the Medicare Payment Advisory Commission’s (MedPAC’s) report. Changes could be significant and redistributive, but would not be effective until after Congress acts on the report. Since 2012 is an election year, implementation before FY2014 is considered unlikely. Therefore, it is important to continue to evaluate your hospital’s wage index information.

Immediate next steps include evaluating opportunities for reclassification for FY2012. The deadline for such requests is September 1, 2010. All PPS hospitals also should evaluate their FY2012 wage index information. While CMS has not yet released the FY2012 timeline, changes are typically due to the Medicare Administrative Contractor or fiscal intermediary by early December. Now is a good time to make sure your system is capturing the OMS information you will need for the current calendar year as noted above.

Contact your BKD advisor for more information on how these changes could affect you.