Hospital Wages and the Prospective Payment System Wage Index

摘要

The area wage index of Medicare's Prospective Payment System (PPS) is intended to compensate hospitals for the cost of labor in local areas. Its accuracy is critical to ensuring the equity of PPS payments to different areas. Currently, the PPS wage index is based on a periodic Health Care Financing Administration (HCFA) survey of hospital payroll, fringe benefits, and paid hours. Average hourly compensation at each hospital is calculated by dividing total labor expense by total paid hours. Hospital average wages are combined into an area average, then indexed to a national average value to form the PPS adjustor. Thus, any factors that influence hospital average hourly compensation affect the PPS wage index. This study finds that the major determinants of hospital average hourly compensation are: area opportunity wages (i.e., the amount hospital workers could earn in alternative occupations in an area); area hospital-specific wages; hospital size; hospital casemix; hospital occupation mix; hospital unionization; and the competitiveness of the area labor market.