Southwest Consulting Associates Blog

The 2017 IPPS Proposed Rule was put on display for public inspection on April 18, 2016 and is scheduled to be published in the Federal Register on Wednesday, April 27, 2016.  The pre-publication version can be viewed HERE.  All public comments to the proposed rule are to be received by 5 p.m. EST on June 17, 2016.  Below is SCA’s brief, yet comprehensive summary on the proposed rule as it will affect DSH hospitals.

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

2017 Proposed Rule Highlights

1. Updated estimates for Factors 1, 2 and 3

2. Continuing using low income days for calculating Factor 3

3. New Medicaid days proxy for Puerto Rico hospitals

4. Continuing methodology for UC payment for merger hospitals

5. Expand the time period of data used to calculated UC payment amounts

6. Future transition to use Worksheet S-10 data to calculate and distribute UC payments

    a) 3-year transition

7. Defining uncompensated care costs

In this post, we will take a look at most of the highlights above beginning with Factor 1.

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 ultimately through the settlement of the cost report.  The net result is Factor 1.

CMS Office of the Actuary estimates FY17 DSH at $14.227 billion.  This is $816 million more than the FY16 final rule DSH estimate of $13.411 billion.  The baseline DSH was established using FY13 cost reports and was then rolled forward using various payment factors.  

2017 Factor 1 ≈ $10.670 billion ($14.227 * 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 conjunction 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 56.74% and a UC Pool of $6.054 billion (≈ $10.670B * 56.74%).  

CY 2016 insured:  89%

CY 2017 insured:  90%

FY 2017 weighted insured:  (89% * .25) + (90% * .75) = 89.75%

FY 2013 uninsured:  18%

FY 2017 uninsured:  100% - 89.75% = 10.25%

FY 2017 ACA reduction:  0.2%

1- ((18 - 10.25%) / 18%) - 0.2% = 56.74%

$10.670B * 56.74% = $6,054,458,492.68

For more information on the Factor 2 formula and FY 2016 comparison, click HERE.

Factor 3

For FY 2017, Medicaid/SSI days will continue to be used to calculate a hospital’s share of the UC pool.  HOWEVER, unlike in years past, CMS is proposing to utilize the average of Factor 3 from three cost reporting periods instead of just one.  The stated reason for doing this was to mitigate large swings of data between cost reporting periods.  CMS will utilize Medicaid days data from provider cost reports from FY 2011, 2012 and 2013.  The Final rule will incorporate SSI days from the published FY 2012, 2013 and 2014 SSI percentages.

S-10  

For FY 2018, CMS is proposing to begin utilizing uncompensated care data from Worksheet S-10 to calculate a qualifying provider’s factor 3 and subsequently distribute the UC payment.  As proposed for FY 2017, CMS proposes to continue to use the average of three cost reports instead of just one and incorporating 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 is proposing 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 is proposing 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 will solely be determined from the average of Worksheet S-10 data from three cost reporting periods.

Worksheet S-10 Uncompensated Care Definition Highlights

In the FY 2017 proposed rule, CMS proposes to define uncompensated care costs for purposes of calculating Factor 3.  They establish that uncompensated care costs would best be defined by Line 30 from Worksheet S-10 which includes the sum of cost of charity care from Line 23 and the cost of non-Medicare bad debt expense from line 29.  Please note that Medicaid shortfalls are not included in the proposed definition for uncompensated care costs.  In addition, CMS also defines the timing (prospectively) for charity care costs to be reported based on write-off date and not service date.

Don't miss the subsequent blog posts in our FY 2017 IPPS Proposed Rule series and SUBSCRIBE TO OUR BLOG BELOW!