OIG Cites “Vulnerabilities” in Medicare Wage Index System

The Office of the Inspector General of the U.S. Department of Health and Human Services has “…observed significant vulnerabilities in the [Medicare area] wage index system…”  As a result of these vulnerabilities, Medicare has overpaid 272 hospitals by more than $140 million over the past 13 years.

The vulnerabilities the OIG identified that contributed to these overpayments are:

  • absent misrepresentation or falsification, CMS lacks the authority to penalize hospitals that submit inaccurate or incomplete wage data;
  • Medicare Administrative Contractors’ limited reviews do not always identify inaccurate wage data;
  • the rural floor decreases wage index accuracy; and
  • hold-harmless provisions in federal law and CMS policy pertaining to geographically reclassified hospitals’ wage data decrease wage index accuracy.

To address these problems, the OIG recommended that CMS and the Secretary of Health and Human Services revisit the possibility of comprehensive wage index system reform, including the option of a commuting-based wage index.  In 2012 CMS proposed establishing such a system but Congress chose not to mandate its implementation.

Without comprehensive reform, the OIG recommended that CMS:

  • seek legislative authority to penalize hospitals that submit inaccurate or incomplete wage data in the absence of misrepresentation or falsification;
  • seek legislation to repeal the law creating the rural floor;
  • seek legislation to repeal the hold-harmless provisions in federal law, allowing CMS to calculate each area wage index based on the wage data of hospitals that reclassify into the area an hospitals geographically located in the area provided that they do not reclassify out;
  • rescind its hold-harmless policy relating to geographically reclassified hospitals’ wage data; and
  • work with the Medicare Administrative Contractors to develop a program of in-depth wage data audits at a limited number of hospitals each year, focusing on hospitals whose wage data have high levels of influence on the wage index of their area.

CMS agreed with some of these recommendations and rejected others.

Learn more about the OIG’s review and its findings in this Fierce Healthcare article or see the OIG report “Significant Vulnerabilities Exist in the Hospital Wage Index System for Medicare Payments,” which can be found here.

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