First few Article Sentences
Medicare, like any large organization or business, has long known that labor costs vary across the nation. For example, a small community may lie less than 20 miles from a large metropolitan area, but the two are likely to be worlds apart when it comes to what the average health care worker in each city is paid. Which only makes sense—after all, it typically costs quite a bit more to live in a city of three million people than it does in a community of only 20,000.
So, to ensure equitable reimbursement rates across a range of geographies whose labor costs vary, Medicare uses a wage index system to adjust the labor portion of its payments to providers. Currently, that index is calculated by taking the average hourly wage (AHW) paid by hospitals within a geographic area and dividing it by the national AHW.