Presentation to the IOM Committee on Geographic Adjustment Factors in Medicare Payment September 17, 2010

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1 Presentation to the IOM Committee on Geographic Adjustment Factors in Medicare Payment September 17, 2010 Karen S. Heller, M.B.A. Executive Vice President, Health Economics and Finance Greater New York Hospital Association

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3 To adjust the labor-related portion of Medicare prospective payments for local differences in compensation for health care workers Necessary to reduce systematic risk associated with local differences in purchasing power 3

Federal Office of Personnel Management Compares Federal and non-federal pay in 35 localities ERI Economic Research Institute Compensation surveys in >5,500 local markets Clients include the IRS and

4 Federal Office of Personnel Management Compares Federal and non-federal pay in 35 localities ERI Economic Research Institute Compensation surveys in >5,500 local markets Clients include the IRS and many major corporations: 3M Amazon American Express AT&T Best Buy Cisco Systems Coca-Cola Costco ebay ExxonMobil FedEx Google Hewlett-Packard Honda IBM Intel IRS J.P. Morgan Chase John Deere Johnson & Johnson L Oreal Lowe s McDonald s Microsoft Nestle Nike Nokia Nordstrom PepsiCo Procter and Gamble Samsung Sony Starbucks Target Toyota UPS Wal-Mart Walt Disney Wells Fargo 4

example, through HRSA s National Health Services Corps or through residency

5 Help address workforce shortages Generally caused by undesirable work settings More successful strategy Attract workers for a temporary period For example, through HRSA s National Health Services Corps or through residency training Many workers stay in the underserved areas after having positive experiences 5

Labor market distortion Many MSAs and rural areas are too broad Combine discrete labor markets Dilute central city wage differentials Bellevue v.

6 Labor market distortion Many MSAs and rural areas are too broad Combine discrete labor markets Dilute central city wage differentials Bellevue v. Leavitt: United States Court of Appeals, Second Circuit; argued Dec. 2005; decided Apr (for CMS) Create cliffs at the edges of metropolitan areas Unfair labor competition creates demand for otherwise unwarranted reclassifications Result is a $1B annual budget neutrality adjustment* * Estimated based on the FY 2011 acute inpatient PPS final rule. 6

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Should use same source for salaries and benefits

salary and benefit data (yet) Additional benefit

labor markets Can derive county-based indices Can

8 Should use same source for salaries and benefits (Agree with Acumen) BLS does not provide matching salary and benefit data (yet) Additional benefit of hospital-level data Flexibility in determining labor markets Can derive county-based indices Can vary use of counties/msas based on population density 8

But it would require revision of the cost report wage index survey, as follows: No longer report data currently collected on Worksheet S-3 Parts II and III Replace them with net* salaries and hours

9 But it would require revision of the cost report wage index survey, as follows: No longer report data currently collected on Worksheet S-3 Parts II and III Replace them with net* salaries and hours by occupation New York already does this (See appendix) Continue supplemental Form CMS-339 Most accurate source of wagerelated costs Continue current policy for Part A physicians Exclude residents and supervising physicians Include others * Payroll expenses are net of retroactive and overtime pay; hours are net of on-call and overtime hours. 9

1. At the national level, for all occupations combined 2.

Derive the national average hourly wage rate Sum the hours Derive each occupation s share of

For each labor market area, for each occupation Sum the compensation and hours Derive the

10 1. At the national level, for all occupations combined 2. At the national level, for each occupation individually Sum the compensation and hours Derive the national average hourly wage rate Sum the hours Derive each occupation s share of total hours ( fixed occupation weights ) 3. For each labor market area, for each occupation Sum the compensation and hours Derive the average hourly wage rate 4. For each labor market area, for all occupations combined Derive the weighted average hourly wage rate using fixed occupation weights Derive the wage index 10

11 Advantage of blending Would reduce the need for reclassifications Would reduce the national budget neutrality adjustment Blending should be empirically determined Based on hospital employee commutation patterns Cost report should collect hospital employees by county of residence Blending mechanics Apply the wage index applicable to each county in which the hospital s employees reside Blend those indices based on the proportion of employees living in each county Can result in hospital-specific wage indices 11

12 The New York Institutional Cost Report Occupational Survey (Exhibit 35) Example of Hospital Survey Data Needed for the Laspeyres Approach 12

Occupational Categories Administration Physicians Nurses Therapists Ancillaries Technologists Operations Occupations Payroll Less Retroactive and Overtime Pay Hours Less On-Call and Overtime Hours

69 5% All Other Managers And Administrators 15,931,285 262,472 60.70 3% Accountants, Auditors & Other Financial 2,148,801 71,827 29.92 1% All Other Admin Support Occupations 16,714,612 597,074 27.

13 Occupational Categories Administration Physicians Nurses Therapists Ancillaries Technologists Operations Occupations Payroll Less Retroactive and Overtime Pay Hours Less On-Call and Overtime Hours Average Hourly Wage Rates Occupation Weights Total All Hospital Personnel 320,380,203 9,363, % Medicine And Health Service Managers 36,094, , % All Other Managers And Administrators 15,931, , % Accountants, Auditors & Other Financial 2,148,801 71, % All Other Admin Support Occupations 16,714, , % Administrative Support 453,610 19, % Medical Secretaries/Secretaries 4,452, , % Clerks - All Titles 21,644,657 1,107, % Other Physicians Providing Care 18,701, , % Post Graduate Trainees - Fellows 340,145 9, % Post Graduate Trainees - Residents 13,075, , % Physicians' Assistants 6,801, , % Cert Registered Nurse Anesthetists 709,815 11, % Nurse Practitioners 4,861,974 89, % Nurse Supervisors 1,891,271 40, % Registered Nurses 85,827,465 2,018, % LPNs 671,216 26, % Nursing Aides, Orderlies & Attendants 23,919,257 1,228, % Physical Therapists 3,416,827 87, % Respiratory Therapists 3,172,945 82, % Occupational Therapists 2,069,493 56, % Speech Pathologists & Audiologists 1,036,569 29, % All Other Therapists 50,898 1, % Physical & Corrective Therapy Assts 423,112 21, % Pharmacists 3,649,303 88, % Psychologists 199,193 4, % Social Workers 6,248, , % All Other Health Professionals 7,714, , % Dieticians 297,234 10, % Radiologic Technologists/Technicians 8,633, , % Medical & Clinical Lab Technologists 9,166, , % All Other Service & Maint Occupations 3,925, , % Maintenance Workers 1,729,443 68, % All Other Reimbursable Personnel 3,107, , % Patient Food Service Workers 4,063, , % Housekeeping Aides 7,235, , % CMS Survey Would Exclude Direct GME Titles 13

RURAL HEALTH RESEARCH POLICY ANALYSIS CENTER. A Primer on the Occupational Mix Adjustment to the. Medicare Hospital Wage Index. Working Paper No.

RURAL HEALTH RESEARCH POLICY ANALYSIS CENTER. A Primer on the Occupational Mix Adjustment to the. Medicare Hospital Wage Index. Working Paper No. N C RURAL HEALTH RESEARCH & POLICY ANALYSIS CENTER A Primer on the Occupational Mix to the Medicare Hospital Wage Index Working Paper No. 86 September, 2006 725 MARTIN LUTHER KING JR. BLVD. CB #7590 THE