Medicare Wage Index

Posted on June 14, 2019

You may recently have heard or read information in Tennessee news media about proposed changes to the Medicare Wage Index (MWI), sometimes called the AWI (Area Wage Index). The Medicare Wage Index is one element that influences a hospital’s overall payment from the Medicare program. It was originally designed to create a consistent healthcare payment structure that recognizes variations in labor costs across the nation. But over time, changes to the formula and other factors have eroded its fairness. This leaves hospitals in certain parts of the country, including Tennessee, with much lower rates of Medicare payments than hospitals in other areas receive for similar services.

Covenant Health has long advocated for changes to the Medicare Wage Index – the current flawed formula has negatively impacted hospitals in East Tennessee for well over a decade. Finally, after years of effort including discussions with legislators and government officials at local, state and national levels and the Centers for Medicare and Medicaid Services (CMS) administration, we have an opportunity to see progress in this area. 

On April 23, 2019, CMS released a proposed rule to increase wage index values for hospitals with an MWI below the 25th percentile (which includes most Tennessee hospitals). To fairly balance the impact of the change and remain budget-neutral, the agency also would decrease the wage index for hospitals with values above the 75th percentile. CMS proposes that this pilot policy would be effective for at least four years, beginning October 2019.

While not a permanent solution, this is a significant first step toward a more fair process to reward hospitals that work aggressively to control costs. This is only a proposed rule. CMS is now accepting public comments on the proposal until 4:59 pm EDT on June 24th, 2019. CMS must consider all the public comments it receives before issuing the final rule, likely in August or September. Therefore, it is critically important that CMS hear from Tennesseans in support of this change.

As Covenant Health’s CEO, I am personally aware of how hard our employees work to deliver excellent care while controlling costs. This is very challenging, as Medicare reimbursements have decreased while our costs have increased. We have member hospitals in both urban and rural areas, and we provide much-needed medical specialties in our communities, even when those specific services operate at a financial loss to our health system. In addition, Covenant Health provided over $66 million in charity care in 2018. To fulfill our mission of improving the quality of life in our region through better health, a fair rate of Medicare reimbursement is critically important to our health system.

I’m sure you are also aware that many rural hospitals in Tennessee have closed – in fact, we have the highest level of hospital closings in the country. These closings limit healthcare access and devastate local economies. Our Medicare payment levels must improve so that healthcare will be available to our citizens and Tennessee will continue to have a vibrant economy and quality of life.

I am very grateful to the Centers for Medicare and Medicaid Services for its willingness to implement the proposed new rule, CMS-1716-P, and for legislative support on many levels. If you would like to add your voice in support of this change, you may read the proposal online and submit comments at