On Tuesday, the Centers for Medicare & Medicaid Services (CMS) announced its proposed plan to more equitably reimburse hospitals under the Medicare program's hospital area wage index (AWI).

This announcement is welcome news for Tennessee hospitals and the Tennessee Hospital Association (THA), which has long advocated for reform of the Medicare reimbursement formula that significantly disadvantages the state's hospitals.

In response to the announcement, THA President and CEO Craig Becker made the following statement.

"For years, the Medicare AWI has benefited hospitals in high income states at the expense of hospitals in states like Tennessee - particularly our rural hospitals - which have struggled to remain financially viable under this inequitable situation.

"Yesterday's announcement by CMS recognizes this longstanding unfairness and creates a reasonable path forward to provide much needed relief for Tennessee's hospitals. This change will help secure the continued availability of healthcare services in communities across Tennessee and can provide a more sustainable future for all hospitals."

"We applaud CMS' leadership on this issue and are grateful for the continued support from Tennessee's congressional delegation in advocating for AWI reform."

The Medicare AWI is part of a decades-old complex formula used to determine how much a hospital is paid for providing care. The original intent of the Medicare AWI was to provide adjustments to Medicare hospital payments based on market-to-market differences in hospital labor and benefit costs. Because of the significant flaws in the AWI formula, Medicare reimbursement for wages in areas like Knoxville and Tri-Cities declined 20 percent since 2000 while salary costs increased by nearly 60 percent.