The 2017 IPPS Final Rule was posted on August 2, 2016 and will be effective October 1, 2016. Below is SCA’s summary on the rule as it affects disproportionate share hospitals (DSH).
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:
Empirically Justified Medicare DSH Payment
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
FY 2017 Final Rule Highlights
Factor 1
Factor 1 establishes the uncompensated care pool. CMS estimates the total amount of Medicare DSH reimbursement for all qualifying hospitals (under the pre-ACA/traditional DSH formula) in a given federal fiscal year. That estimate is reduced by 25%, which represents the empirically justified Medicare DSH reimbursement that is payable directly to a qualifying DSH hospital ultimately through the settlement of the cost report. The net result is Factor 1.
CMS Office of the Actuary estimates FY17 DSH at $14.397 billion. This estimate is based on the March 2016 update of 2013 cost report data included in the HCRIS database with additional payment factors applied.
2017 Factor 1 ≈ $10.797 billion ($14.397 * 75%)
For reference, Factor 1 for FY 2016 as estimated by CMS was $10.058B.
Factor 2
Factor 2 reduces the Uncompensated Care Pool (Factor 1), established above, in relation with the changes in the uninsured rate. 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 10% in FY17 which yields a Factor 2 of 55.36% and a UC Pool of $5.977 billion (≈ $10.797B *55.36%).
CY 2016 insured: 90%
CY 2017 insured: 90%
FY 2017 weighted insured: (90% * .25) + (90% * .75) = 90%
FY 2013 uninsured: 18%
FY 2017 uninsured: 100% - 90% = 10%
FY 2017 ACA reduction: 0.2%
1- ((18% - 10%) / 18%) - 0.2% = 55.36%
$10.797B * 55.36% = $5,977,483,147
Please note, the 55.36% Factor 2 estimate was revised from the FY 2017 proposed rule. The proposed Factor 2 in the FY 2017 proposed rule was 56.74%. For more information on the Factor 2 formula, click HERE.
Factor 3
For FY 2017, Medicaid/SSI days will continue to be used to calculate a hospital’s share of the UC payment. CMS stated that “using low-income insured days as a proxy for uncompensated care costs provides a reasonable basis to determine Factor 3 in FY 2017, as we work to improve Worksheet S-10...” IN ADDITION, CMS is finalizing as proposed to utilize the average of Factor 3 from three cost reporting periods instead of just one. The stated reason for doing this was to “reduce undue fluctuations in a hospital’s uncompensated care payments”. CMS will utilize Medicaid days data from provider cost reports from FY 2011, 2012 and 2013. SSI days from the published FY 2012, 2013 and 2014 SSI percentages will also be utilized. The 2014 SSI percentages were published on July 15, 2016.
Going Forward - FY 2018 and Beyond
Like many stakeholders, we were eagerly anticipating what CMS would finalize in regards to using cost report Worksheet S-10 for calculating Factor 3 after 2017. If you will recall, the 2017 proposed rule detailed the UC payment formula for FY 2018 and beyond. In short, CMS had proposed to continue to use the average of three cost reports instead of just one and incorporate a transition schedule using a combination of days and Worksheet S-10 data before ultimately only using Worksheet S-10 data for FY 2020 and beyond. So, for FY 2018, CMS proposed the following combination to calculate a provider’s average Factor 3:
1st Factor 3: low income days from FY 2012 cost report and FY 2014 SSI ratio
2nd Factor 3: low income days from FY 2013 cost report and FY 2015 SSI ratio
3rd Factor 3: 2014 Worksheet S-10 data
For FY 2019 and forward, CMS proposed to use the same methodology as above but advancing the timeline forward 1-year with two-thirds of the Factor 3 calculated using Worksheet S-10 data. The transition period would conclude in FY 2020 as a provider’s Factor 3 would solely be determined from the average of Worksheet S-10 data from three cost reporting periods. Read more about the FY 2017 proposed rule HERE.
In the end, CMS did not finalize the proposed UC payment formula detailed above in the FY 2017 final rule for FY 2018 and future years. Instead they commented, “we are not finalizing our proposal to begin to incorporate Worksheet S-10 data into the computation of Factor 3 for FY 2018. Instead, we believe it is important that we have the opportunity to consider further the concerns raised...regarding the use of Worksheet S-10 data to determine Factor 3. We expect to re-propose a policy of incorporating Worksheet S-10 data into the computation of Factor 3 no later than FY 2021.”
More on Worksheet S-10 in the Final Rule
CMS intends to clarify and revise the instructions used to complete worksheet S-10 in the future.
Due to the time lag in implementing prospective changes, CMS believes that cost reporting periods beginning in FY 2017 would be the first cost reporting periods that would reflect revised S-10 data under the new instructions.
The revised data using the new instructions would be available for use no later than FFY 2021.
CMS intends to provide MACs with general guidance for Worksheet S-10 reviews and instructions on when and how often a hospital’s Worksheet S-10 should be reviewed.
CMS intends to address comments on the definition of uncompensated care as part of the revisions to Worksheet S-10.
CMS expects to propose that uncompensated care costs are defined as charity care costs plus non-Medicare bad debt cost.
CMS intends to revise the S-10, Line 20 instructions to report charity care based on date of write-off not based on date of service.
CMS also referenced Change Request 9648, Transmittal 1681 from July which included guidance for MACs to follow for accepting cost reports containing revised Worksheet S-10 information if submitted to MACs by a September 30, 2016 deadline. “CR 9648 is one of the multiple steps we intend to take over the next several years to ensure more accurate and uniform reporting of uncompensated care costs on Worksheet S-10.” More on this coming soon...
Lastly, CMS stated, “As a result of taking these steps and instituting Worksheet S–10 modifications, clarifications, and MAC reviews, we believe that revised Worksheet S–10 data will be available for use in the calculation of Factor 3 in the near future, and no later than FY
2021.
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