AWI Brief

Medicare SNF Area Wage Index Brief: September 2023

CMS adjusts SNF Medicare PPS rates to account for differences in area wages using hospital cost report data. Per MedPAC, this negatively impacts SNF reimbursement but also results in irrational differences in payment across counties with no discernible difference in cost of living.

Congress instructed CMS to a develop SNF-specific wage index in 2002. For two decades, CMS has resisted due to the administrative burden in completing the requisite audits. Worse, hospitals are permitted to apply for geographic reclassification and receive “rural floor” protection. SNFs can do nothing to correct their poorly calibrated AWI assignment.

Annual AWI changes can significantly impact SNF rates. CMS instituted a 5% loss protection per year related to AWI that fixes nothing; the 5% phase-in only slows the freefall.

See 2022 – 2024 AWI trends for county-specific impact.

This is ZHSG’s Issue Brief. The full paper is available here.

Medicare SNF Area Wage Index Overview

• AWI is a federal market-specific adjustment that reflects relative labor cost differences across the nation. Each year, certain markets become relatively more expensive, some less. In other words, inflation is not evenly distributed.
• AWI is a “zero-sum game” – there are winners & losers. Most designated Core-Based Statistical Areas (CBSAs) remain relatively stable, but many change by more than 5% every year, and swings can be severe.
• SNF stakeholders expecting a 4.0% rate increase October 1, 2023 may be caught off guard when the first check comes higher/lower than budgeted. This happens every year; we call it the “October Surprise” because new rates are effective for Service Dates on/after October 1st.

Medicare AWI: $NF Impact

• Medicare’s AWI exacerbates SNF mispricing across the country.
• New rates are effective every October 1.
• Congress instructed CMS to implement SNF-specific Index in 2002; CMS says it lacks resources to audit SNF cost reports (yet it has resources to audit Reimbursable Bad Debt).
• MedPAC recommends AWI system changes that would benefit SNFs:
  • 27% of SNFs would realize at least a 5% rate increase
• SNF AWI is based on Hospital cost reports, yet SNFs are not granted the Geographic Reclassification rights afforded Hospitals:
  • 66% of Hospitals were granted reclassification to higher paying AWI regions in 2022, up from 40% in 2007.
  • SNFs are penalized and effectively subsidize Hospitals