September 2012 www.bls.gov

The Employment Cost Index and the

Impact on Medicare Reimbursements

Office of Compensation Levels and Trends • NCSinfo@bls.gov • www.bls.gov/ect • 202.691.6199

Since the mid-1980’s, the Bureau of Labor Statistics Employment Cost Index (ECI) has been used as part of an 

annual process to update payments to various healthcare providers under Medicare’s Prospective Payment 

System (PPS). The PPS designates the level of payment for Medicare-covered services and products, adjusted 

annually, based on a number of factors including price changes in compensation for personnel. ECI data are 

used as a major factor in determining Medicare payment adjustments in six provider categories, resulting in an 

estimated $3.4 billion dollar reimbursement increase for 2009.1

Estimated Payment Example (using December 2009 ECI) 

The PPS Hospital Input Price Index uses 

several ECI components to make annual 

adjustments to payments for various 

Medicare hospital-related payment provider 

categories. For example, Medicare 

reimbursements for hospital inpatient and 

acute care were approximately 

$132.5 billion, according to the Centers for 

Medicare & Medicaid Services (CMS) data 

from 2009. Over 74 percent of the Medicare 

update is based on the ECI. Applying the 

total ECI-related weight (74.2%) to the 

calculated percent change using the 

December 2009 ECI (1.51%), would result in 

a $2.0 billion dollar increase1 in Medicare 

payments for hospital inpatient and acute care. 

The following table provides approximate annual updates in Medicare payments due to increases in the ECI 

Medicare payment provider category

2009 CMS Medicare 

reimbursement (in 

millions of dollars)3

Percent of 

update 

based on 

ECI

Percent change in 

Medicare 

payments due to 

ECI

Increase resulting 

from change in ECI 

(in millions of 

dollars)1

Hospital inpatient and acute care $132,496 74.2% 1.51% $2,001

Hospital outpatient 25,267 74.2% 1.51% 382

Hospice 12,210 74.2% 1.51% 184

Skilled nursing facilities 26,281 67.6%4 1.30% 342

Home healthcare 18,820 85.2%4 1.39% 262

Physicians 61,893 27.1%4 0.36% 223

Total $276,967 $3,394

See footnotes on back.

ECI Component Weight

2009 ECI 

12-month 

percent 

change

Percent 

change in 

Medicare 

payments 

due to ECI

Civilian, hospital, wages 47.2% 2.1% 0.99%

Civilian, hospital, benefits

2

12.4% 2.7% 0.34%

Private, professional and related 

occupations, compensation 9.4% 1.0% 0.09%

Private, service occupations,

compensation 3.2% 1.8% 0.06%

Private, financial activities 

occupations, compensation 1.3% 1.4% 0.02%

Private, office and administrative 

support occupations, compensation 0.6% 1.8% 0.01%

Total 74.2% 1.51%
Office of Compensation Levels and Trends • NCSinfo@bls.gov • www.bls.gov/ect • 202.691.6199

1

The estimated reimbursement is a hypothetical example and does not factor in any changes to payments 

based on other patient or provider specific characteristics. 

2

Estimate derived by the Centers for Medicare & Medicaid Services and Global Insight, Inc. from published BLS 

data. See the PPS Hospital Input Price Index for additional information on market basket weights at 

http://www.cms.hhs.gov/MedicareProgramRatesStats/downloads/mktbskt-pps-hospital-2006.pdf. 

3

Source: Centers for Medicare and Medicaid Services, Office of the Actuary reimbursement estimates provided 

for President’s 2012 budget.

4

The Skilled Nursing Facility Input Price Index, Home Health Input Price Index, and Medicare Economic Index 

market basket weights, located at http://www.cms.gov/Research-Statistics-Data-and-Systems/StatisticsTrends-and-Reports/MedicareProgramRatesStats/MarketBasketData.html determine adjustments for skilled 

nursing facilities, home healthcare providers, and physicians, respectively, and use different weights than the 

PPS Hospital Input Price Index. 

See the article “Using the Employment Cost Index to adjust Medicare payments” by Al Schwenk and Bill 

Wiatrowski, October 2002, Monthly Labor Review, at http://www.bls.gov/opub/mlr/2002/10/art3full.pdf for 

1999 data and information on how Medicare adjustment calculations are made.