This study addresses the occupation-mix adjustment that has recently been added to the computation of the area wage index used to adjust Medicare prospective rates for all institutional healthcare providers. Project staff will review the policy objectives as well as the mechanics of the of the adjustment, and then analyze the data from the most recent occupation-mix survey for a better understanding of occupation mix differences across labor markets and hospital types. The hospital wage index is used to adjust all Medicare prospective payment system (PPS) payments, and has a large influence on the distributional equity of the payment systems. A better understanding of the purpose, the mechanics and the source data for occupation mix adjustment will contribute to our ability to evaluate the equity of the current and new PPS.

The project has three components. First, the underlying policy objective of the occupation mix adjustment will be discussed, to improve baseline understanding of this issue and clarify what it should or should not accomplish within the regulatory framework and guiding principles of the Medicare PPS. This part of the study will involve a synthesis of publications from various government agencies. In the second component, Centers for Medicare & Medicaid Service's implementation of the adjustment will be addressed. The output from this component will be descriptive, with results provided primarily in table form. The third and largest part of the study will be an analysis of the raw data submitted by the hospitals, to gain a better understanding of the extent and sources of variation in occupation mix. This part of the study focuses on hospital differences rather than market differences in occupation mix, because the results are intended to add to our understanding of the factors that influence individual hospital labor costs and staffing decisions, rather than the factors that affect the area wage index.

The products of this project will include one working paper that covers the material from the first two components of the study, and a second that presents the results from the analysis of hospital mix differences.

Publications

• A Primer on the Occupational Mix Adjustment to the Medicare Hospital Wage Index
  North Carolina Rural Health Research and Policy Analysis Center
  Date: 09/2006
  This paper focuses on the occupational mix adjustment (OMA) to the labor-related share in the hospital inpatient prospective payment system. The primer explains what the OMA is, why it is needed, and how it has been calculated. In addition, reasons why the effect of the OMA has been less than some rural advocates anticipated are discussed.