WASHINGTON — Sandwiched between the Florida Panhandle and the Mississippi coast, Infirmary Health’s hospitals can’t compete with neighboring states’ wages.
Nurses and health care professionals who live in south Alabama can drive just a little longer to Pensacola for work and earn up to $5 an hour more in the Sunshine State than they can at home. That leaves hospitals in Mobile and Baldwin counties struggling to attract talent.
“It’s almost impossible for us to go toe-to-toe with them on wages and benefits,” Mark Nix, president and CEO of Infirmary Health System, told Alabama Daily News.
“When you employ, in our case, 6,700 people, that becomes a big number when you’re talking about anywhere from $3 to $5 (more) an hour,” he added.
If Infirmary Health raised its wages to compete with the other areas, it would have a trickle-down effect on other parts of the healthcare system.
“If we end up spending more on our wages and benefits, we have less money to spend on physician recruitment, technology changes…(and) basic maintenance of hospitals,” Nix told ADN.
The disparity is the result of the federal wage index, a complicated formula for Medicare reimbursement that factors a hospital’s location into its labor costs. Hospitals must update their wage information each year. As higher wage index hospitals pay their employees more, their reimbursements go up; meanwhile, lower wage index hospitals see their reimbursements decline.
“The wage index is, in my opinion, a fundamentally flawed system,” Nix said.
The wage index must be budget-neutral, so any increase in reimbursements in one area would lead to a decrease in another area. That makes any changes to it hard to sell in Congress.
“That has been a challenge. The losers in the high-wage index states aren’t willing to give up what they have,” Danne Howard, president and CEO of Alabama Hospital Association, told ADN. “I don’t blame them. I wouldn’t either if it were me, but I need them to.”
Howard said Alabama hospitals need higher-earning states to give up a little, so that low-wage index states can gain a lot.
Alabama’s rural wage index is 0.64, the lowest in the continental United States. For a rural hospital in the state performing a $10,000 procedure, Medicare would reimburse the hospital $6,400. For a rural hospital in California, it would be reimbursed $12,300 for the same procedure.
Under Centers for Medicaid and Medicare Services rules, if a hospital is located within 35 miles of a higher wage index hospital, it can be reclassified to that area to receive a larger reimbursement.
But that 35-mile reclassification limit leaves many Alabama hospitals in the dust, Nix said, including those in the Infirmary Health System.
“So Mobile County hospitals cannot attach to Florida because they are more than 35 miles away,” Nix told ADN.
But if CMS expanded the 35-mile re-classification rule to 50 miles, Infirmary Health and most Alabama hospitals would benefit. That’s the crux of a proposed change proposed by Alabama’s entire congressional delegation.
In total, Alabama hospitals would get reimbursed $460 million more than they do under the current system if CMS implemented the reclassification change. The high wage index hospitals would lose $2.30 per $1,000 in Medicare reimbursements.
“It’s very insignificant to everyone else, but it will allow these hospitals that are in critically challenged areas, in particular, the rural hospitals, to have an opportunity to survive,” Nix said.
U.S. Rep. Robert Aderholt, R-Haleyville, who has been at the forefront of pushing wage index reform, led the state’s delegation in a letter in early December to CMS, urging the agency to consider the reclassification change.
“Not only are they losing money, but also the hospitals are losing great employees,” Aderholt told ADN at the time. “So this is a way just again, just to even the playing field for everybody.”
The delegation argues that the 50-mile change reflects current commuting patterns of hospital staff.
Though Alabama’s delegation, Nix and Howard are hopeful about the prospect of the reclassification change, hurdles remain.
It’s unclear if CMS will act on this proposed change. It would be up to CMS Administrator Dr. Mehmet Oz to pursue it.
A CMS spokesperson told ADN that the agency will review the delegation’s letter and respond to the lawmakers. It does not comment on future actions.
Aderholt said since sending the letter, he has discussed the issue with Oz and was assured the agency will “continue to work on it.”
The reclassification change is just one of several fixes to the wage index system that have been proposed over the years.
In 2020, a rule change provided wage index increases for four years to hospitals that have been on the low end of reimbursements. But after a lawsuit from hospitals, a court ruled that the Department of Health and Human Services did not have the authority to make that change, thereby discontinuing the reimbursement increase for low wage hospitals.
Howard said she’s as hopeful as she can be about this proposed change, considering the complexity that comes with reforming the system.
“We’re excited about it, and we will be doing a lot of messaging and working with our counterpart states who are also in the low quartile,” she told ADN. “So this is not just an Alabama thing. This is every state that’s in the bottom quartile.”
The wage index inequity doesn’t just impact Medicare reimbursements, but can also influence other rates, Nix said.
“That wage index basically controls all the other payments, whether it’s Medicare Advantage plans or whether it’s private insurance companies that are paying a multiple or a derivative of that Medicare rate,” he told ADN.
“Unless you change the base Medicare reimbursement through the wage index, none of those other rates will be impacted positively.”
If no change is made to the current system, low wage index hospitals will continue to spiral downward, while high-earning ones gradually move up, Nix added.