Under Medicare, a plethora of policies directly correlate to whether the patient or provider is located in an urban or rural area when the service is delivered. These policies range from rules that limit coverage of telehealth services to encounters where the patient is located in a rural area (a restriction that has been waived since 2020 but will go back into effect when the waiver expires at the end of this year) to specific hospital designations (e.g., critical access hospital, rural health clinics, rural emergency hospitals).
Payments for healthcare services also are often impacted by a provider’s geographic location. For hospitals and many other provider types (e.g., hospices and ambulatory surgery centers), Medicare payments are adjusted by a wage index, which is intended to account for differences in regional labor markets. The Centers for Medicare & Medicaid Services (CMS) recently made a significant update to its geographic delineations that may have major consequences for hospitals and other healthcare providers. To help me describe these changes and their implications, I’m bringing in my colleague Eric Zimmerman.
Every 10 years, following a decennial census, the US Office of Management and Budget (OMB) uses updated population and commuting pattern data to update core-based statistical areas (CBSAs). OMB also sometimes updates the criteria it uses to define CBSAs. CMS typically adopts OMB’s updates, and those changes have ripple effects throughout the Medicare program. (CMS also makes minor adjustments in intervening years when OMB does so.) The last major CBSA update for Medicare was implemented for fiscal year (FY) 2015. In the FY 2025 Hospital Inpatient Prospective Payment System (IPPS) final reg, CMS announced that it would adopt the latest CBSA and corresponding metropolitan statistical area (MSA) configurations (MSAs are a subset of CBSAs). Revised MSA delineations can be found in the tables accompanying the IPPS final reg and in OMB’s July 21, 2023, Bulletin No. 23-01.
The biggest implication of this update is possibly the wage index. CMS uses a wage index to adjust payments for hospitals (for both inpatient and outpatient services) and various other provider types (e.g., hospices, ambulatory surgical centers, home health agencies, long-term acute care hospitals and inpatient rehabilitation facilities) by geography, to account for perceived variations in labor costs across labor markets. Simply put, CMS believes that the cost of labor in Miami is higher than the cost of labor in rural Iowa.
The wage index is calculated and assigned to hospitals (and other provider types) on the basis of the labor market in which the hospital is located. CMS uses OMB-defined MSAs to delineate labor markets. Hospitals in MSAs are generally considered to be urban, while hospitals in areas outside of an MSA are considered rural. CMS identifies one rural area per state, and all hospitals in that rural area are considered to be in the same labor market. Generally, CMS calculates a distinct wage index for each MSA and one for each state rural area.
Many special designations available to hospitals also depend on whether a hospital is located in a rural or urban area. Only providers located in rural areas are eligible for rural emergency hospital, Medicare-dependent hospital and critical access hospital status, for example. Some programs use eligibility criteria that go beyond the MSA delineations, but there are many hospitals that rely on being in MSA-based rural areas to qualify for one of these designations. These special statuses each have unique payment rules that could yield higher payment rates for certain services. If a hospital’s status changes from urban to rural due to the MSA changes, the hospital could lose its special status (and the higher payments that go along with it) when the next fiscal year starts on October 1, 2024. Likewise, hospitals in historically urban areas could become eligible for these programs.
Based on the updated CBSA/MSA configurations, CMS believes that 53 counties (and county equivalents) and 33 hospitals that were once considered part of an MSA will be considered to be located in a rural area beginning in FY 2025. CMS projects that 54 counties (and county equivalents) and 24 hospitals that were located in rural areas will be located in urban areas under the revised OMB delineations. CMS identifies all counties experiencing changes in the preamble of the IPPS final reg.
All in all, going to back to the admonition of this blog post, all hospitals in these areas should examine the MSA changes on a case-by-case basis and consider whether any aspect of their status or payment has been affected.
Until next week, this is Jeffrey (and Eric saying), enjoy reading regs with your eggs.
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