Wage Index Hot Topics


Home Office Reviews
Medicare audit staff conduct many different types of reviews and audits each year. Some providers misunderstand the purpose and scope of the audit staffs’ wage index home office reviews. A general overview of the differences and clarification of the wage index home office review is provided below. 

When a home office is certified by Medicare, the home office receives a Medicare CCN number and the home office must provide a “cost statement” (287-20 or equivalent) to their servicing Medicare Administrative Contractor (MAC). The MAC then performs acceptance reviews of the cost statement to determine if the file is acceptable, and if it can be processed straight to settlement, or if further review of the report is required. 

If further review of the report is required, a desk review or audit of the file might be performed, dependent upon internal MAC thresholds. This review might entail auditors contacting the provider’s home office staff to gather supporting documentation for amounts filed on the report to determine accuracy, reasonableness and allowability. Adjustments might be proposed to the home office cost statement, and the file will subsequently be sent by the auditors for settlement and issuance of a Notice of Program Reimbursement (NPR). 

Typically, the home office cost statement reviews and subsequent NPR happen within a year to 18 months of acceptance of the cost statement. These reviews and/or audits are independent of any Medicare wage index review that may occur on these cost statements. 

CMS also instructs MACs to review home office costs during the yearly wage index review process. Due to the timing and nature of these wage index reviews, the MAC’s wage index team may request supporting home office data for a home office cost statement that is currently also being reviewed by the MAC’s audit team, or may even request supporting documentation for a home office cost statement that has already been settled. 

For desk reviews and audits, MACs look to the home office cost statement and use CMS and internal thresholds to determine the extent of further review. For wage index reviews, MACs look to the individual provider’s S-series worksheets and use CMS dictated thresholds to determine the extent of further review of the associated home offices. Wage teams would request supporting documentation at that time to support home office costs claimed on the S-series worksheets, and any resulting adjustments related to wage index home office reviews, would be reallocated to each applicable facility under that home office. The finalized wage index totals are submitted to CMS and subsequently are incorporated into the final rule/Public Use File (PUF) which affects the wage index and future rates. 

It is for this reason that providers may:

  • Receive supporting documentation requests for home office amounts claimed, even after the provider has received a notice of program reimbursement for that home office;
  • Receive inquiries regarding their home office during the wage teams’ review, even if the home office is serviced by another MAC; and/or
  • Receive inquiries regarding home office amounts even if the wage review team had no other wage edits for a particular provider during the period

If, at any time, the provider or home office staff have further questions or concerns regarding wage index home office reviews, the MAC encourages them to reach out to the wage index staff. Palmetto wage index staff can be reached at JJWageIndex@palmettogba.com (JJ MAC) or CostReport.WageIndex@palmettogba.com (JM MAC).


Part A Versus Part B Costs Claimed for Wage Index
Reviews of Part A versus Part B costs claimed have been a point of contention for providers and MACs in recent history. So much so that CMS clarified the handling and claiming of these costs during a recent final rule publication. CMS stated that the longstanding requirements of Medicare costs still apply to the wage index reviews, and that all codified instructions regarding the handling of Part A versus Part B costs would remain in effect. 

These clarifications affect any Part A or B costs filed on the S-series worksheets, and include but are not limited to: nonphysician anesthetist (A/B), physician Part A administrative, physician Part A teaching, physician/nonphysician part B, nonphysician part B, nonphysician Part B for RHC/FQHC services, contract labor physician Part A administrative, home office physician Part A administrative, home office and contract teaching physicians Part A. 

The general rules surrounding claiming of costs for wage index purposes, are that the costs must be accurate, reasonable and auditable. Any costs claimed for wage index must consist of actual (labor/wage) costs incurred, and actual hours worked, in order to arrive at the most accurate average hourly wage for CMS’ wage index purposes. The only exception to these rules is if the provider chooses to keep Medicare approved time studies, which can stand in as statistical surrogates in the absence of support for all actual hours worked. 

The wage index auditors’ review of any claimed Part A versus Part B costs will vary depending upon the type of costs claimed, thresholds, and scope of review, but general guidelines for required support are noted below: 

  • If any cost is supported but determined to be non-allowable as Part A cost, that cost must be recorded as Part B on the Medicare cost report 
  • To support labor costs and wages, the provider must maintain the following documents (as applicable): contract or employment contract that details out job duties and descriptions, payroll reports, invoices, general ledger
  • To support hours worked, the provider must maintain the following documents (as applicable): payroll reports, invoices, general ledger, time studies
  • Burden of proof is on the provider to maintain appropriate documents to support actual costs incurred and actual hours worked. No estimates are acceptable other than the previously aforementioned time studies above. No attestations from the provider or vendor will be accepted for hours worked. Documentation provided must be reasonable, auditable, and come from a source system (payroll system or invoicing system, etc.). 
  • On-call hours are only to be included if the employee/contractor is "working or on-site and available to work." Time away from the facility is not considered actual hours worked. 

If, at any time, the provider staff have further questions or concerns regarding wage index reviews, the MAC encourages them to reach out to the wage index staff. Palmetto wage index staff can be reached at JJWageIndex@palmettogba.com (JJ MAC) or CostReport.WageIndex@palmettogba.com (JM MAC). 


Wage-Related Cost Allocation Methodology
Changes in allocation method has been a point of contention for providers and MACs in recent history. CMS has recently clarified handling of allocation methodology and changes to allocation methodology.

A frequently used allocation methodology for wage-related costs is based on percent-to-total salaries. An alternative allocation method would be based on FTEs (hours). CMS policy states that if a hospital wants to change its allocation methodology, it must inform the MAC in writing no later than the early September deadline for the start of the desk reviews, and provide a legitimate rationale for doing so. Documentation must be included to support the change. If no request was made or the request is not properly supported, the prior year’s allocation method should be used. 

Recently, more providers have been using FICA CAP methodology to allocate the social security portion of the wage-related cost, which is capped each year. In order to use this methodology, the provider must submit a formal request to change the methodology in writing and provide a legitimate rationale for doing so, along with documentation to support the change. This documentation must include the payroll support for each line on W/S S-3, Pt. II, lines 1–10 by employee that is then compared to the applicable FICA CAP. The FICA CAP total for each line should be equal to each employee’s salaries that is less than or equal to the FICA CAP. The amount over the FICA CAP is not counted in the FICA CAP allocation. For example: Employee A's salary is $160,000 and the FICA CAP is $137,700; therefore, the FICA CAP salaries for Employee A is $137,700.

All lines of W/S S-3, pt. II, lines 1–10 must be reduced by the FICA CAP, including line 1. Providers will regularly reduce lines 2–10 but not line 1. This is not allowable.

If, at any time, a provider’s staff has further questions or concerns regarding wage index reviews, the MAC encourages them to reach out to the wage index staff. Palmetto GBA’s wage index staff can be reached at JJWageIndex@palmettogba.com (JJ MAC) or CostReport.WageIndex@palmettogba.com (JM MAC). 


Documentation Requests and Submissions for Wage Index
Due to the very short CMS-mandated timeframe for wage index reviews each year, Palmetto GBA chooses to request specific documentation necessary for the auditors to complete our reviews in the most efficient and timely manner. This happens each fall, prior to the beginning of the process. Providers should expect to receive a full documentation request around late July or early August each year, for the upcoming fall reviews. These requests are all-encompassing, and providers should remember a few key points: 

  • If the support being requested has already been submitted with the as-filed cost report, or has already been submitted during previous wage index reviews (i.e., prior years’ contracts that are still in effect, etc.), then a simple response from the provider stating such will suffice. No need to resubmit duplicate documentation year after year. 
  • It is preferrable for providers to submit supporting documentation through the Palmetto GBA eServices portal via the wage index (or occupational mix, as appliable) drop-down selections. These portal submissions are typically received by the wage index teams within 24 hours of submission. Providers should retain the document control number (DCN) that they are provided with when submitting, as this number might be necessary later if submission issues arise. 
    • The wage index teams and auditors do not maintain the eServices portal. For assistance with submitting documentation, providers are referred to the help tab of the eServices homepage, or you may also contact eServices.Support@palmettogba.com.
  • Backup submission methods can be used if the portal submission process is unavailable for any reason. Providers may submit to JJWageIndex@palmettogba.com (JJ MAC) or CostReport.WageIndex@palmettogba.com (JM MAC), or also submit via hard copy mail (see our website for physical mailing addresses).

FY 2023 Hospital Wage Index Development Timetable (PDF, 62 KB). 





Last Updated: 07/07/2021