WASHINGTON — Alabama’s entire congressional delegation wants the Centers for Medicare and Medicaid Services to reclassify rural hospitals under the wage index, which in turn could help the struggling providers stay afloat.
The wage index is a complicated formula used to determine Medicare reimbursement payments for hospitals based on regional labor costs.
As a rural state, Alabama has the lowest wage index in the continental United States at roughly 0.64, meaning for every $100 in services rendered to a Medicare patient, hospitals in the state are reimbursed $64 by the federal government. While a more urban state like California has a rate of 1.23, which allows hospitals to be reimbursed $123 for a $100 worth of services given to Medicare patients.
Recently, the state’s nine federal lawmakers urged Dr. Mehmet Oz, the administrator of CMS, to allow low wage index providers that are within 50 miles of a higher-paid wage area to reclassify to that area and thus receive a higher reimbursement rate. The current requirement only allows low wage index rural hospitals within 35 miles of a higher-paid area to reclassify to that area.
“This change could, quite simply, save rural healthcare,” the letter, led by Rep. Robert Aderholt, R-Haleyville, the chair of the appropriations subcommittee that oversees CMS funding, reads.
The state’s hospitals would receive approximately $460 million more than they do under the current system, according to the letter.
“This is a way just to even the playing field, to make sure that rural hospitals are still being able to compete, and they can pay their employees like the larger hospitals, and they’re doing the same kind of work,” Aderholt told Alabama Daily News.
Alabama’s entire delegation is pushing Dr. Oz and CMS to reclassify rural hospitals under the wage index to help them get more Medicare reimbursements. #ALPolitics https://t.co/ntDxi8j0Zk
— Alex Angle (@alexangle_) December 9, 2025
The reclassification could help rural hospitals pay their employees more and attract and retain more workers to areas that have traditionally struggled to attract employees because of lower wages.
“By addressing extreme wage disparities, this change will empower low-wage hospitals to sustain critical services, bolstering healthcare access for the most vulnerable communities and populations,” the letter reads.
Rep. Terri Sewell, D-Birmingham, said Alabama is on a “collision course” toward the closure of more rural hospitals, and making this change would help correct that.
“We’ve been raising this issue Congress after Congress after Congress, and given that Alabama did not expand Medicaid, it makes it even more critical that we make sure that our rural hospitals get reimbursed at a higher rate,” Sewell told ADN.
A significant sticking point to implementing the change is that the wage index has to be budget neutral, so any changes that would boost the rates for lower wage hospitals would lead to a decrease for the higher wage ones.
But the delegation contends that the reduction these higher wage index hospitals face would be minimal. They would see a reduction of $2.30 per $1,000 in Medicare reimbursements, according to the letter.
The lawmakers also point out that those hospitals that have been receiving higher reimbursements have been “benefiting from the dangerously low payments to hospitals in rural America for decades.”
The delegation’s call for Oz to implement the change reflects language included in the House Labor, Health and Human Services Appropriations report that urged the CMS to implement a reclassification mechanism for hospitals in the lowest quartile of wage indexes to receive the same payments as higher wage index hospitals in the same area.
The push for this change comes after a court ruling in 2024 reversed a previously enacted rule that boosted the payments for hospitals that were on the low end of reimbursement rates.
“The Alabama delegation is united in working together with the Administration on this critical issue – for the health and survival of our rural communities,” the letter reads.
Alabama’s rural hospitals are desperate for financial help. As of December, 23 or 48% of rural hospitals in the state are at an immediate risk of closure, according to a report from the Center of Healthcare Quality and Payment Reform.
Sewell highlighted how support for addressing the wage index is bipartisan and spans across southern states.
“It’s simply unacceptable,” she said. “We have to keep pushing this issue.”
On Tuesday, Aderholt said that since the delegation sent the letter to CMS on Dec. 5, he has talked with Oz, and he was assured that CMS will “continue to work on it.”
Now it’s up to Oz at the helm of CMS if he wants to implement this change, which is likely to spur backlash from states and hospitals with higher reimbursement rates if it’s implemented.