Fact sheet




The Centers for Medicare & Medicaid Services (CMS) today issued a proposed rule to update and revise the Medicare hospice wage index (WI) for fiscal year (FY) 2009.  

CMS proposes to phase out an outdated adjustment to the hospice wage index that was put into place over 10 years ago.  Elimination of this adjustment will save Medicare $2.29 billion over five years.  While hospice payment rates are projected to increase in 2009, it is estimated that the increase will be approximately 1.1 percent lower for FY 2009, the first year of the three-year phase-out of the adjustment.

This proposal, included in the 2009 President’s Budget, reflects the ongoing efforts of CMS to support beneficiary access to hospice services while maintaining responsible financial stewardship of the Medicare Trust Fund.   


In 1997, the agency, then the Health Care Financing Administration (HCFA), changed an outdated, decades old wage index to a more accurate method for determining the hospice wage index.  At the same time, an adjustment was applied to the hospice wage index to minimize disruption in beneficiary access to hospice services.  This special adjustment, known as the “budget neutrality adjustment factor” (BNAF), remains based on 24 year-old wage data.  Elimination of the BNAF, as proposed in the hospice wage index rule, would update the hospice wage index to reflect current wages.

The number of Medicare-certified hospices has increased significantly over the past decade and a half, up by 86% since 1994, and by 26 percent between 2001 and 2005.  The bulk of this growth has occurred since the 1997 wage index change.  Hospice expenditures were up to $9.24 billion for 2006 and are expected to grow at a rate of 9 percent per year through 2015, according to estimates by the Medicare Payment Advisory Commission (MedPA C).  Such a growth rate would outpace that projected for hospitals, skilled nursing facilities, physician services and home health care.

Proposal Details

The BNAF is proposed to be phased out over three years, beginning with a 25 percent reduction in FY 2009, an additional 50 percent reduction (for a total of 75 percent) in FY 2010, and a complete elimination in FY 2011. 

The proposed rule notes the reduction in hospice payments would be would be netted against annual market basket increases.  Currently the market basket increase for RY 2009 is estimated to be 3.0 percent.   The actual update, however, will not be available until July.

The proposed hospice wage index for FY 2009, which is based on the unadjusted hospital wage index, is updated annually and would be a more accurate assessment of costs than past wage indices.  Phasing out the budget neutrality adjustment also makes the hospice wage index more consistent with the home health wage index.  Both hospices and home health agencies are home-based benefits which compete in the same labor markets.

This rule also proposes a change in the way multi-campus hospitals report their wage data, which affects the hospital wage index used to derive the hospice wage index.  Taken together, these changes will pay hospices more accurately while maintaining the fiscal integrity of the Medicare system, without affecting beneficiaries’ access to quality care.

The proposed rule will appear in the Federal Register on May 1, 2008.  A final rule will be published sometime in August 2008.

A link to the proposed rule and accompanying documents will be available at