Calculating and using the area wage index of the Medicare inpatient hospital Prospective Payment System.

When Congress created the Medicare Prospective Payment System (PPS) for hospitals in 1983, it established separate standardized payment amounts (national average costs per Medicare case) for inpatient services provided by urban and rural hospitals. The urban standardized amount was 25.3 percent greater than the rural standardized amount. This variation in payment was challenged by rural health advocates, and Congress responded in 1989 by beginning a five-year phase-out of the urban-rural differential in PPS payment rates.