Outsourcing is a common practice in all areas of business, including the healthcare sector. Although this is a major expense for a hospital, it can influence the wage index factor impacting Medicare reimbursement. The wage index factor is determined through a hospital’s wage index average hourly wage which includes both employees on the hospital payroll and certain contracted vendors. This factor is used to calculate the wage component of a hospital’s DRG payment rate. If a hospital’s contract labor is correctly identified and reported, it can significantly raise its wage index factor.
Contract labor related to the following personnel can be included in the wage index data:
- Direct patient care personnel related to nursing, diagnostic, therapeutic, rehabilitation, and pharmacy
- Top-level management related to CEO, COO, CFO, or nursing administrator
- Administrative physicians related to Medical Director, Chief of Medical Staff, or physicians in administrative activities
- Administrative and general personnel related to legal, data processing, tax preparation, and other administrative functions
- Dietary and Housekeeping under contract
Best practice is to engage with your vendors early and often to gather more reliable data. Ideally, that reliable data would be supported by an agreed-upon contract with the vendor, and the vendor would provide invoices with labor hours and costs.
Similarly, contracted Part A physicians have comparable guidelines to contract labor. They must have a written contract that supports their compensation and the amount of time spent performing their duties.
During a Medicare Administrative Contractor audit, if written contracts and/or supporting invoices are not presented to the auditor, it increases the likelihood that these dollars and hours will be thrown out and not allowed to be reported in the wage index review.
Contact Us
Blue & Co. experts have significant experience identifying contract labor for reporting purposes in the Wage Index Survey. To help with the proper documentation and reporting of these expenses, we can assist with searching through invoices and contracts, compiling summaries, and removing any non-allowable related expenses. Your Blue & Co. team can answer questions about how CMS uses the Wage Index Survey and how it impacts Medicare reimbursement, and help ensure you are in compliance with CMS regulations while working with your hospital to appropriately capture all the information required. Reach out to your local Blue & Co. Advisor or contact one of our experts listed below if your organization needs more information about the Wage Index Survey.
Kyle Smith, CPA, 340B ACE, Director
Austin Fisher, CPA, Senior Manager
