IPPS Dashboard

Wage Adjustment Factors

Information regarding labor-based adjustments to IPPS payments are contained in the CMS Impact File. This file corresponds to the Final Rule and Correction Notice and contains data elements by provider used in calculating rates and impacts for a federal fiscal year.

Geographic Labor Market Area
A hospital's Core Based Statistical Area (CBSA) designation. It is based on where the hospital is physically located based on its Social Security Administration (SSA) state and county information. Rural areas are designated by 2-digit SSA state codes.
Pre-Reclassification Labor Market Area
This indicates a hospital's labor market area (CBSA) based on its geographic location. In FY2015 IPPS hospitals were allowed to apply for reclassification into a different labor market area for the purpose of designating its wage index for a 3-year period, FY2017 through 2019. Generally, in order to request a reclassification a rural hospital must be in the proximity of the new CBSA and its average hourly wage must be 6% higher than the average for its area and at least 82% of the average in the new area. (An urban hospital must be 8% higher than its area and at least 84% higher than the new area.)
Post Reclassification Labor Market Area
This is a hospital's labor market area (CBSA) as reclassified for the purpose of designating its wage index for FY2017-19. (see above)
Social Security Administration (SSA) state county code indicates the county in which a hospital is located. The first two digits represent the state code and the last 4 digits represent the county code.
Wage Index
The methodology for determining prospective payments to hospitals includes an adjustment to standardized amounts to account for area differences in hospital wage levels by a factor known as the wage index. It reflects the relative hospital wage level in a labor market area to the national average hospital wage level. A hospitals wage index also reflects any geographic reclassification to another labor market area. The wage index is updated annually.
Section 505 Adjustment
Section 505 of the Medicare Modernization Act of 2003 (MMA) introduced a new type of wage index adjustment that is based primarily on commuting patterns. It provides for wage index changes for qualifying hospitals located in qualifying counties where at least 10 percent of resident hospital workers are commuting to hospitals located in other MSAs with a higher wage index. The adjusted index is a weighted average of the wage index for the home (or resident) county and the indexes for the work area counties.
Section 401
Section 401 of the Medicare Modernization Act of 2003 equalizes the national adjusted operating standardized amounts for hospitals in large urban and other areas. In addition, it increases the large urban and other area national adjusted amounts for Puerto Rico and equalizes the Puerto Rico-specific urban and other area rates.