The purpose of the wage index is to address the differences in labor costs that hospitals experience based on their geographical location. The wage index ensures that hospitals in areas with higher labor expenses receive higher Medicare reimbursement rates, which helps to ensure that hospitals in high-cost areas can cover their operating expenses. Rural hospitals often face unique challenges, including lower patient volumes, financial constraints, and difficulty recruiting and retaining healthcare professionals. Centers for Medicare & Medicaid Services addresses these challenges by applying a Rural Floor to establish a minimum wage index for hospitals in rural areas, which aims to provide hospitals with a reasonable level of reimbursement.

The COVID-19 pandemic has impacted hospitals both financially and operationally. Both urban and rural hospitals have faced an increased demand for resources, changes in patient volumes, and additional expenses related to the pandemic response. In addition, hospitals have been affected by labor shortages, especially among healthcare professionals such as nurses. Neoclassical economic theory predicts that labor shortages would lead to increases in prevailing wage rates, which then would influence the wage index calculation. There is a possibility that wage increases are not equal across the country, with variation across different regions and/or levels of rurality.

Using Healthcare Cost Report Information System data, the project will compare the average salary expense per full-time equivalent per hospital, average hospital hourly wage in hospital county, and average wage index for rural and urban acute Inpatient Prospective Payment System hospitals for the years 2017 to 2023. Results will be stratified by geographical, hospital, and community characteristics.