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A Primer on Geographic Reclassification [PODCAST]

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The Hospital Finance Podcast

In this episode, we are joined by BESLER’s Reimbursement Consultant, Cody Bales to help us understand more about geographic reclassification and how you might be missing out on some reimbursement opportunities.

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Highlights of this episode include:

  • What geographic reclassification is
  • The benefits of reclassifying
  • How to apply
  • Hospital Eligibility
  • Pitfalls to watch out for

Mike Passanante: Hi, this is Mike Passanante and welcome back to the award-winning Hospital Finance podcast. Many of you in our audience may be familiar with the hospital wage index, but there’s a certain area of it called geographic reclassification that if you’re not really focused in and paying attention to, you might be missing out on some reimbursement opportunities. So to help us understand more about what geographic reclassification is, I’m joined by Cody Bales, who is a reimbursement consultant with us here at BESLER. Cody is a certified public accountant and a certified healthcare financial professional. Cody, welcome to the show.

Cody Bales: Hey, Mike, thanks for letting me join today.

Mike: We’re looking forward to this. This is going to be, I think, a very interesting topic and quite an education for some of us. So why don’t you start out by telling us what geographic reclassification is?

Cody: Okay. Sure. CMS uses certain data to assign each subsection (d) hospital into what is called a CBSA, or core based statistical area. So for each CBSA, an average hourly wage level is established through data that is submitted by hospitals with their regular Medicare cost reporting. Medicare then will ultimately adjust IPPS payments made to hospitals based on that wage level versus a national wage level. This is all kind of spelled out in Medicare payment rules. Now, the wage level of any given area or CBSA is then, of course, a function of the hospitals within that area. Wage data is aggregated from all hospitals located in the area. Aggregated wages divided by aggregated hours gives you average hourly wage. So therefore, the average hourly wage value for a specific hospital is very much dependent on their geographic area.

So then where does geographic reclassification come in? The Medicare rules actually provide that hospitals have the option, if certain criteria are met, to request reclassification – or redesignation as it’s sometimes called – from one geographic area to another. A hospital can go from rural to urban CBSA, rural to rural, or urban to urban. Now, this process commonly comes into play for hospitals that share labor force characteristics more with another area than their home area. But in reality, hospitals may have this option to reclassify under numerous circumstances. And then ultimately, of course, the effect is that a reclassified hospital will receive the wage index value of the reclassified area, not their home area. And also note that a reclassification request, once it’s approved, is good for actually a three year term.

Mike: Okay. So, Cody, what are the benefits of reclassifying?

Cody: Well, the benefits can be profound. Again, Medicare adjusts operating payments made to hospitals based on the calculated wage level that is specific to a hospital’s home geographic area. So hospitals that request and are subsequently approved for redesignation to another area can receive a higher wage index, which in turn increases the adjustment factor for DRG payments, which, of course, results in an increase to operating payments made by the hospital for Medicare. So that’s a big deal. Even a seemingly very small increase to a wage index value, say, from 0.93 to 0.97, can really translate into millions or tens of millions of dollars in revenue from Medicare each year.

Mike: All right, so let’s get into the specifics. How does a hospital apply for a reclassification?

Cody: Yeah, reclassification requests are handled by the Medicare Geographic Classification Review Board, which is kind of a mouthful and often simply referred to just as the MGCRB or the board. The board publishes instructions and information about the application process, which is all handled 100% online through a portal. Hospitals are no longer allowed to submit email or paper requests. So hospitals that are interested in applying must first gather all their necessary supporting documentation. Then the hospital can, through a case representative, which can be someone that’s internal to the facility or can be a third party, go through the online application process and upload all the documentation along with the application, just everything through the online portal. So the process itself isn’t terribly complicated. It’s understanding your options based on your eligibility and making all the correct calculations, which is a little more difficult.

Mike: So, Cody, how would a hospital know if they’re eligible?

Cody: Good question, Mike. That’s kind of where the rubber meets the road. The criteria that a hospital must demonstrate and the thresholds that must be met are somewhat complicated. There are a couple of different buckets of types of criteria to keep in mind. One is proximity. Hospitals must demonstrate they are located physically near to the area for which they want to reclassify. The other criteria to remember is the wage level threshold test. Essentially, hospitals must use prescribed wage data to show that their calculated average hourly wage meets certain thresholds when compared both to their home area and to the area for which they’re requesting reclassification. And to further complicate matters, the criteria for that mileage of that distance and the wage threshold levels that must be met varies actually quite a bit depending on the characteristics or status of the hospital. So urban versus rural, and then also any special status the hospital might have, a rural referral center as an example.

Mike: So, Cody, what happens if a hospital does not meet the criteria? What can they do?

Cody: There are a few options. If a hospital does not individually meet the eligibility criteria, then it may combine efforts with other hospitals in the county for what is called a group application. The criteria for a group application differ from that of an individual. So hospitals may actually find that they don’t meet the criteria individually, but they do as part of the group. And note, however, that all hospitals in the county must work together to jointly apply. And I would also say that hospitals should take stock of any and all special statuses they may be able to obtain. This would be in reference to rural referral centers. So community hospitals, section 401, as I just touched on, having one or more of these statuses will loosen the criteria and definitely open up your eligibility options a little bit. The last recommendation I would offer in the case of a hospital that finds that they’re not eligible is just to fully assess the wage data being submitted through the Medicare cost report. If something’s being missed or something is not being reported properly through those worksheets, the hospital really could be inadvertently causing themselves to be ineligible when they really should be.

Mike: Are there any pitfalls to watch out for?

Cody: Great question. This is a fairly complicated area, so there are, unfortunately, a few areas to get tripped up. Obviously, first and foremost, a hospital should be meticulous in fully evaluating the most beneficial move. Which area to choose for reclassification, individual versus group, or even not reclassifying at all might be the best option. One specific pitfall I always like to bring up is relates to the out migration adjustment hospitals in certain counties receive what is called an out migration adjustment, which is a positive adjustment to a hospital’s wage index based on commuting patterns that are specific to that county. Now, it’s extremely important to weigh the benefits of reclassification away from these counties as a hospital cannot simultaneously receive the geographic reclassification benefit in addition to the out migration adjustment. And just lastly, I would say that hospitals should, even after applying for reclassification, continue to evaluate that benefit. The relevant figures can and do change between the time of application and the actual effective date of the reclassification. And then, of course, there really is no guarantee of what other hospitals may choose to do. So that’s another item to kind of keep in mind.

Mike: And of course, our Reimbursement Team here at BESLER can help your hospital navigate the nuances of geographic reclassification. If you’d like to learn more about this topic, Cody has delivered a webinar called Geographic Reclass 101, and you can head up to our website, go to the Insight section, click on the Reimbursement tab and you’ll get a recording of that webinar there. So we invite you to take a look at that. Cody Bales, thanks so much for joining us today on the Hospital Finance Podcast.

Cody: Thanks, Mike.

[music] This concludes today’s episode of the Hospital Finance Podcast. For show notes and additional resources to help you protect and enhance revenue at your hospital, visit The Hospital Finance Podcast is a production of BESLER, SMART ABOUT REVENUE TENACIOUS ABOUT RESULTS.


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