Written by Christopher Hemans, CHCRS, Manager
Every year, billions of dollars hinge on a little-known process known as Medicare geo-reclassification.
For hospitals, the difference between thriving and struggling can come down to how they are classified geographically. Understanding how these rules work and why they matter can unlock significant reimbursement advantages for your organization.
Here’s what you need to know about Medicare geographic reclassifications and how they can impact your hospital.
How Does Geographic Reclassification Affect Medicare Reimbursement?
Medicare geographic reclassifications are used by hospitals to increase their Medicare reimbursement by increasing their wage index factor based on the Core-Based Statistical Area in which they are located.
According to the U.S. Census Bureau, a Core Based Statistical Area or CBSA is the collective term used to refer to metropolitan statistical areas and micropolitan statistical areas, which are delineated by the Office of Management and Budget (OMB). OMB generally defines a CBSA as an area that contains a central county that has a substantial urban population, along with any adjacent communities that have a high level of integration with the central county.
The CBSAs are identified in each state and based on the hospital’s location.
Who May Qualify for Medicare Geographic Reclassification?
Every year, hospitals may apply for geo-reclassification to a new CBSA if they meet certain criteria. The criteria can be related to the hospital’s proximity to the requested CBSA and the hospital’s average hourly wage.
Proximity Requirements
The reclassification request, as it relates to proximity, means that the hospital must meet a certain mileage requirement to the CBSA they are requesting.
Average Hourly Wage Requirements
However, there are two requirements related to the hospital’s average hourly wage (AHW).
The first requirement for AHW is that the hospital’s average hourly wage must be above 106% of their current CBSA. This would confirm that the hospital is higher than the average for the CBSA it is located in.
The second requirement for AHW is that the hospital’s AHW must be above 82% of the CBSA the hospital is requesting to join. This would confirm the hospital is within a reasonable range of the CBSA they are trying to move to.
This would prevent hospitals with a low AHW from moving to a high AHW just to gain increased reimbursement.
Important Note: Eligibility criteria can change; confirm requirements for the applicable application cycle here.
When Is the MGCRB Application Due?
Applications for Medicare geographic reclassification can be completed and submitted to the Medicare Geographic Classification Review Board (MGCRB) at the end of August each year.
The hospital must submit its application through the MGCRB portal and upload the required supporting documents for the geographic reclassification.
The MGCRB will review the application and decide whether to grant the request or deny it.
If the geographic reclassification is approved, the hospital will move to the requested CBSA and use the wage index factor of that CBSA in the following federal fiscal year.
When Does an Approved Reclassification Take Effect and How Long Does It Last?
The reclassification is for a three-year period.
So, for example, if the hospital applied in August of 2026, the geographic reclassification would be for the period of October 1, 2027, through September 30, 2030.
Strategic Considerations for Hospitals and RRCs
Each year, your hospital will have the opportunity to submit a new application for a different CBSA for which the hospital qualifies. This would give hospitals the flexibility to ensure they are optimizing their wage index factor each year.
Depending on the hospital’s location, there may be several options for the hospital to request, or a few CBSAs within the required distance. This can be a factor for Rural Referral Center (RRC) hospitals when they have gained RRC status.
A hospital that becomes RRC will be designated as rural and will be added to the rural floor of the state they are located in. This application would give them the benefits of RRC status while maintaining a wage index factor based on the CBSA they apply to.
These reclassifications can also be used in collaboration with other hospitals to increase a state’s rural floor AHW, benefiting multiple hospitals in the state. This could benefit the entire state and increase overall reimbursement compared to benefiting only a few hospitals.
How Blue & Co. Helps Hospitals Evaluate Reclassification Opportunities
Blue & Co. helps hospitals identify potential CBSAs, validate eligibility requirements, model reimbursement implications, and prepare MGCRB submissions. Our team can help you assess whether reclassification supports your broader Medicare wage index and reimbursement strategy.
If you need assistance with determining whether your hospital qualifies or with filing a request by the deadline, please contact our experts.
Jacob Wethington, CPA, Senior Manager
Kyle Smith, CPA, 340B ACE, Director
