Medicare Wage Index Trends in Rural and Urban Hospitals Before and During the Low Wage Index Policy, 2018–2022

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04/2026

This study tracks how Medicare wage index values changed for rural and urban Prospective Payment System (PPS) hospitals from 2018–2022. It shows how these values shifted over time and explains how policy and labor market forces may be driving geographic differences in hospital payment. The Low Wage Index Policy (LWIP), implemented in FY 2020, aimed to increase the wage index for hospitals in the lowest quartile by raising their wage index values toward the 25th percentile.

Key Findings:

• For most hospitals, there was little change in wage index values over the five-year period but for the hospitals with low wage indexes, there was a considerable increase. Rural PPS hospitals experienced increases in median and mean wage index values, while urban PPS hospitals saw small decreases.
• LWIP produced the expected distribution of effects by raising the minimum and reducing the maximum wage index values. During LWIP implementation, the minimum wage index increased, and the maximum decreased for both rural PPS and urban PPS hospitals, consistent with the policy's design and budget neutrality requirements.
• Variation in wage index values was greater among urban hospitals than rural hospitals. Rural PPS hospitals consistently demonstrated a smaller interquartile range than urban PPS, indicating less variation across rural labor markets compared to the wider wage index distribution among urban hospitals.

North Carolina Rural Health Research and Policy Analysis Center

Saleema Karim, George Pink, Kristie Thompson, Mark Holmes

Healthcare financing, Hospitals and clinics, Medicare, Rural Emergency Hospitals (REHs)