The occupational mix adjustment to the Medicare hospital wage index: why the rural impact is less than expected.

Context: Rural hospitals are heavily dependent on Medicare for their long-term financial solvency. A recent change to Medicare prospective payment system reimbursement--the occupational mix adjustment (OMA) to the wage index--has attracted a great deal of attention in rural policy circles.

Purpose: This paper explores variation in the OMA across and within urban and rural markets. Reasons why the effect of the OMA has been less than some rural advocates anticipated are discussed.

Methods: Data were obtained from the fiscal year 2007 Final Occupational Mix Survey Data Public Use File and the fiscal year 2007 Final Rule Wage Data Public Use File. Descriptive statistics were generated to determine the need for the OMA and the potential impact of its application on hospitals located in rural markets.

Findings: The average OMA for nonmetropolitan markets is greater than 1, indicating that hospitals in these markets use a less-skilled mix of labor than the national average. However, almost one third of nonmetropolitan markets had an OMA that was less than 1 and experienced a net decrease in Medicare reimbursement due to the OMA.

Conclusions: There are several reasons why the impact of the OMA is smaller than many rural hospital administrators expected. The most important is that the adjustment happens at the market-level rather than for individual hospitals, so a small hospital's staffing mix may have almost no effect on the final payment adjustment. In rural markets, it appears that hospitals in micropolitan areas exert a large influence on the OMA.