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A labor market areas wage index value is the ratio of the areas average hourly wage to the national average hourly wage. The wage index adjustment factor is applied only to the labor portion of the standardized amounts.
Core-based statistical area (CBSA): A geographic area (defined by the Office of Management and Budget) that the Centers for Medicare and Medicaid Services uses to define the payment areas for the hospital wage index. CBSA is a collective term for metropolitan statistical areas and micropolitan statistical areas.
The area wage index adjusts Medicare hospital inpatient and outpatient payments for the approximately 3400 prospective payment system (PPS) hospitals for differences in wage rates across geographic regions.
Example of a National Average Wage Index Calculation The 2021 National Average Wage Index is calculated by multiplying the previous years NAWI by the change in average wages from the previous two years (based on the SSAs average wage data).
Medicare uses Hospital Wage Index to adjust payments made to hospitals under the Prospective Payment System (PPS). It is strongly recommended that each hospital submits the wage-related information to the fiscal intermediary within the requested timeframe.
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In computing the wage index, we derive an average hourly wage for each labor market area (total wage costs divided by total hours for all hospitals in the geographic area) and a national average hourly wage (total wage costs divided by total hours for all hospitals in the nation).

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