Wage Index

While a number of variables contribute to a hospital’s Medicare reimbursement, few are as vital as the Area Wage Index (AWI).  This index measures relative differences in the average hourly wage for hospitals in each labor market area as compared to the national average hourly wage rate.  It is important to remember that the AWI values are based on data reported annually by hospitals on Worksheet S-3, Parts II through V of their Medicare cost reports.

There are three basic reasons why the AWI is important to hospital financial managers;

  • The AWI is a major factor in the calculation of Medicare reimbursement for most all hospitals (and numerous other hospital related entities).

  • Hospital reported data is key to the creation of the AWI, thus a good opportunity to impact your ultimate Medicare revenue. Failure to fully and accurately provide the required data may produce diminished revenue to your hospital.

  • Each hospital and each separate labor market area competes with all other hospitals and all other labor market areas for a fixed pool of Medicare revenue. Improper reporting of wage related data may well result in other hospitals receiving Medicare reimbursement intended to be provided to your hospital.

SRG can be of significant value to your hospital, particularly with the intricate tasks of properly accumulating and documenting relevant AWI data.  SRG offers full or limited scope wage index reviews at the facility level as well as reviews of the entire CBSA (Core-Based Statistical Area).
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