The 2016 IPPS Proposed Rule was put on display on April 17, 2015. All comments to the rule are due by June 16, 2015. Below is SCA’s brief, yet detailed take on the impact to Uncompensated Care Reimbursement (UC).
Quick Review of the DSH Payment Under ACA
As a result of the ACA, the amount of total DSH reimbursement a provider may receive for discharges beginning October 1, 2013, is now based upon two components:
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Empirically Justified Medicare DSH Payment
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Uncompensated Care (UC) Payment
The Empirically Justified Medicare DSH Payment is 25% of what Medicare DSH would have been under the pre-ACA formula. More on that HERE!
The UC payment is a product of 3 factors (Factor 1 x Factor 2 x Factor 3):
Factor 1: 75% fixed pool of what DSH would have been as estimated by CMS for all hospitals combined under the pre-ACA formula
Factor 2: Estimated % change in the national uninsured rate
Factor 3: Provider’s % of uncompensated care relative to all hospitals eligible for DSH
2016 Highlights
Factor 1
CMS Office of the Actuary estimates FY16 DSH at $13.338 billion. This is $45 million less than the FY15 final rule DSH estimate of $13.383 billion. The baseline DSH was established using FY12 cost reports and was then rolled forward using various payment factors.
2016 Factor 1 ≈ $10.003 billion ($13.338 * 75%)
For reference, Factor 1 for FY 2015 as estimated by CMS was $10.038B.
Factor 1 spin
The Office of Actuary report applies an “Other” factor to the DSH estimate. In the FY15 final rule report, an “Other” factor of 1.0355 was applied to FY14. However in the FY16 proposed rule, the “Other” factor for FY14 has been changed to .9993; reducing the DSH estimate from FY13-FY14. This lone factor removes $700 million from the DSH estimate in FY16. CMS should explain the factor change and explain how DSH would decline in the first year of Medicaid expansion under the ACA.
Factor 2
The Congressional Budget Office (CBO) report is used to project the number of insured/uninsured individuals under the ACA. The CBO projects the uninsured rate will be 11% in FY16 which yields a Factor 2 of 63.69% and a UC Pool of $6.371 billion (≈ $10.003B * 63.69%).
CY 2015 insured: 87%
CY 2016 insured: 89%
FY 2016 weighted insured: (87% * .25) + (89% * .75) = 88.5%
FY 2013 uninsured: 18%
FY 2016 uninsured: 100% - 88.5% = 11.5%
FY 2016 ACA reduction: 0.2%
1- ((11.5% - 18%) / 18%) - 0.2% = 63.69%
$10.003B * 63.69% = $6,371,181,591
For more information on the Factor 2 formula and FY 2015 comparison, click HERE.
Factor 2 spin
The change in insurance coverage under the ACA includes an additional 12 million Medicaid/CHIP recipients. This represents a 32% increase over pre-ACA enrollment. CMS should explain the lack of correlation between Medicaid expansion applied to Factor 1 vs. Factor 2. The DSH estimate is only increasing at a marginal annual rate (3%) yet the Medicaid/CHIP population has supposedly increased by 32%. Hospitals’ UC reimbursement is negatively impacted by a depressed DSH estimate (Factor 1) with the maximum reduction factor applied (Factor 2).
Factor 3
Medicaid/SSI days will continue to be used to calculate a hospital’s share of the UC pool. CMS will utilize FFY11/12 cost reports as they did in the FY15 final rule. The stated reason for doing this was to give providers more time to update reported Medicaid days through cost report amendments. The Final rule will incorporate SSI days from the recently published FY 2013 SSI percentages.
Factor 3 spin
51% of the cost reports utilized in Factor 3 of this proposed rule were “as-filed” and another 23% were “settled without audit.” The additional year did not have much of an effect on FY16 Factor 3. We expect hospitals will take advantage of the extension to update Medicaid days in future years. However, some hospitals are receiving denials from their MAC when attempting to amend the cost report. CMS needs to address the procedural limitations with the MAC in order to allow hospitals to submit amended cost reports. Additionally, by holding the cost report fiscal years constant, it delays the increase of Medicaid days in expansion states by one year. Based on the current schedule, expansion Medicaid days won’t be applied until FFY18 when FFY14 cost reports are used for Factor 3.
S-10
CMS used similar verbiage from prior years with regard to using uncompensated care costs from S-10 for Factor 3. They reiterate their desire to eventually use S-10, but again acknowledge the current inconsistencies with S-10 data in HCRIS. No timelines were given regarding any upcoming clarifications or instruction changes to S-10. Providers should expect and still prepare for a future switch to an uncompensated care methodology based on S-10 data.
As in past years, SCA will make available for download our 2016 IPPS proposed rule comment letter once submitted to CMS. Be on the lookout…
