In the final rule for the Inpatient Prospective Payment System (IPPS) for FY 2004, CMS made a number of changes to the wage index for both FY 2004 and 2005. 68 Fed. Reg. 45,346 (Aug. 1, 2003).

FY 2004 Wage Index
The FY 2004 wage index is based on wage data from FY 2000 cost reports. The calculation of the FY 2004 wage index will be essentially the same as the FY 2003 wage index, with two exceptions. The first is that CMS will exclude the wage costs and hours data for rural health clinics (RHCs) and federally qualified health centers (FQHCs). Medicare pays for these costs outside of IPPS, and began to collect data to segregate this information beginning with the FY 2000 cost report. Thus, the FY 2004 wage index is the first to exclude this data.

The second significant change in the wage index is the exclusion of wage data from hospitals that were paid under IPPS in FY 2000 and which were subsequently, and are currently, designated as a critical access hospitals (CAHs). CAHs are limited to only 15 acute care beds, with a potential additional 10 swing beds, and tend to be located in isolated rural areas. The proposed wage index published in May had included this wage data, but CMS had solicited comments on whether it should be excluded. CMS's analysis indicates that CAHs have significantly different, and lower, labor costs. CMS therefore decided to remove these costs from the final FY 2004 wage index, given the substantial negative impact these hospitals have on the wage indexes in the areas where they are located and the minimal impact they have on the wage indexes of other areas.

FY 2005 Wage Index
The final rule discusses several changes that will affect the FY 2005 wage index. The most important of these is a change in the timetable for requesting revisions to the FY 2001 wage and hour data that will be used for the FY 2005 wage index. This change is based on CMS's continuing concern about the growing volume of wage data revisions that are initiated by hospitals after the release of the first public use file in February each year. To accelerate the corrections process, CMS made the preliminary and unaudited wage data file available as a public use file in early October 2003, instead of waiting until January 2004, and gave hospitals until early November 2003 to request any changes. In response to comments that hospitals needed more than 30 days to review the wage data, CMS indicated in the final rule that the preliminary and unaudited data would be available in mid-September, giving the hospitals approximately 45 days to review the data and request revisions. The final revised timetable for the FY 2005 wage index is below.

Therefore, it is essential that hospitals begin now to review their wage and hour data on their 2001 cost reports and to check the data in the public use file promptly, so that any necessary data change requests can be made timely by early to mid-November.

CMS continues to maintain that unless a hospital follows all of these steps for requesting changes in a timely fashion, the hospital subsequently will not be able to appeal the issue of the intermediary's refusal to make changes to the Provider Reimbursement Review Board.

Other changes that may affect the FY 2005 wage index are:

Possible use of new "Core Based Statistical Areas" (CBSAs) based on the new standards and the Census 2000 data. On June 6, 2003 the Office of Management and Budget announced revised definitions of the new CBSAs, including metropolitan statistical areas (50,000 or more) and micropolitan statistical areas (10,000 to 49,999). CMS is not using these new definitions in the FY 2004 wage index, however. It is evaluating the changes and will issue a proposed rule on the incorporation of the revised designations into IPPS.
Use of occupational mix, as required by 42 U.S.C. § 1395ww(d)(3)(E). CMS intends to send surveys through the intermediaries to all IPPS hospitals (and hospitals in Maryland under a waiver from IPPS) to collect data on occupational mix. This data would be incorporated into the FY 2005 wage index at the earliest.
Possible exclusion of paid lunch hours. Several hospitals had requested that paid lunch or meal break hours be excluded from the wage index, as lunch hours are non-productive time and not all hospitals pay for them. CMS solicited comments on this issue in the proposed rule, so as to gain a broader understanding of it. The comments revealed substantial disagreement on the matter, so CMS will continue to include paid lunch or meal break hours in the FY 2005 wage index.
Possible exclusion of paid hours associated with military and jury duty leave. CMS had proposed the possible exclusion of paid hours associated with military and jury duty leave, beginning with the FY 2005 wage index. The rationale is that hospitals typically pay employees on military or jury duty only a fraction of their normal pay, which unfairly reduces the hospital's average hourly wage. The comments revealed substantial disagreement on this issue as well, so CMS will continue to include these hours in the FY 2005 wage index.

Although CMS is now raising issues that may affect the FY 2005 wage index, it will also have to subject these issues to notice and comment again next year, when the proposed FY 2005 wage index is published.

Timeframe	Steps in Wage Index Development Process
Mid-September	Preliminary and unaudited wage data file published as a public use file (PUF) on CMS website.
Mid-November	Deadline for hospitals to request revisions.
Early February	FIs review revisions and desk review wage data; notify hospitals of changes and resolutions of revision requests; and submit preliminary revised data to CMS.
Early March	Deadline for hospitals to request wage data reconsideration of desk review adjustments and provide adequate documentation to support the request.
Early April	Deadline for FIs to submit additional revisions resulting from hospitals' reconsideration requests. Also the deadline for hospitals to request CMS intervention in cases where the hospital disagrees with the FI's policy interpretations.
Early May	Release of final wage data PUF on CMS website.
Early June	Deadline for hospitals to submit correction requests, to both CMS and their FI, for errors due to the mishandling of the final wage data by CMS or the FI.
August 1	Publication of the final rule.
October 1	Effective date of updated wage index.