January 06, 2003 (The Editor’s Desk is updated each business day.)

ECI and Medicare payments

Since the mid-1980s, the BLS Employment Cost Index (ECI), a quarterly measure of the rate of change in employer costs for wages and benefits, has been used as an input to annual adjustments in Medicare payments to service providers.

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ECI data are used as part of a process to determine allowable increases in payments to hospitals, skilled nursing facilities, home healthcare organizations, physicians, and other healthcare providers under Medicare’s Prospective Payment Systems (PPS). 

The PPS designates the level of payment for Medicare-covered services, based on the diagnosis and geographic location of care. Such payments are adjusted annually based on a number of factors, including changes in compensation for medical and related personnel. ECI data are used for many of these compensation changes.

ECI data account for about 71 percent of the input price index used to determine allowable increases in payments for hospital charges. For skilled nursing facilities, the comparable figure is 69 percent, and for home healthcare charges, it is 78 percent.

ECI data are from the BLS Employment Cost Trends program. Additional information is available from "Using the Employment Cost Index to adjust Medicare payments" by Albert E. Schwenk and William J. Wiatrowski, in the October 2002 issue of Monthly Labor Review.