On April 28, 2017, CMS published the FFY 2018 IPPS Proposed Rule in the Federal Register. Go HERE for our summary of the Medicare DSH/Uncompensated care payment portion of the proposed rule. After years of discussion on Worksheet S-10 and false starts on the use of uncompensated care data for Medicare DSH/UC pool distribution purposes, CMS appears to finally be moving forward with implementation. Did anyone else have a moment of deja vu?
In this post, we will take a dive into Factor 3 as described in the proposed rule. The Factor 3 calculation represents the amount of uncompensated care for each hospital as a percentage of uncompensated care for all qualifying hospitals. There are 2,418 qualifying hospitals per CMS’ FFY 2018 proposed rule Factor 3 data files.
For a detailed refresher on “What is Factor 3?”, go HERE. Otherwise, let’s take a quick look back at the methodology used for prior years’ Factor 3 calculations. From FFY 2014 to 2016, low-income days from a single cost report were used and combined with the most recent SSI Fraction numerator days for each year. In FFY 2017, the averaging of three cost reporting periods was introduced and called for the use of low-income days from two of the three years and UC costs per worksheet S-10 for the third year of the three year average formula. As you know, CMS ultimately did not use UC costs per S-10 for the FY 2017 IPPS final rule and yielded to the numerous comments on the proposed rule.
Since that time, CMS updated its benchmarking analysis that it had completed in the previous year and not only was the S-10 data highly correlated with the benchmark, IRS Form 990 data, but the correlation continued to increase over time and the correlation for the 2013 data, the latest data used, was the highest to date.
CMS concluded that “we have reached a tipping point with respect to the use of S-10 data. Specifically, we can no longer conclude that alternate data are available…that are a better proxy for costs of subsection (d) hospitals for treating individuals who are uninsured than the data on uncompensated care costs reported on Worksheet S-10.” ~CMS, FY 2018 proposed rule
CMS states further evidence can be found in the data submitted for FFY 2014 in response to Transmittal 1681, which required hospitals to amend FFY 2014 S-10 data by September 30, 2016, in order for the data in be included in HCRIS by 12/31/2016. Based on the submissions, 25% of hospitals revised Worksheet S-10. CMS stated “The fact that the Worksheet S-10 data changed for such a significant number of hospitals following a review of the cost report data they originally submitted and that the revised Worksheet S-10 information is available to be used in determining uncompensated care costs contributes to our belief that we can no longer conclude that alternative data are available that are a better proxy than Worksheet S-10.”
As a result, Worksheet S-10 data is proposed to be introduced for FFY 2018 as follows:
CMS will continue to use three cost reporting periods, averaging the calculation for each cost report independently as shown on the image to the right (click to enlarge).
FFY 2012, 2013 and 2014 cost reporting periods will be used.
For the final rule, low-income days will be used for FFY 2012 and 2013 along with SSI days for FFY 2014 and 2015, and Worksheet S-10 data will be used for FFY 2014.
Also, in an effort to address some of the other issues in data that have, in past projections, resulted in a wide distribution of dollars among hospitals - CMS has also proposed to:
“annualize” Medicaid and uncompensated care costs data if a hospital’s cost report does not equal 12-months of data.
use a “scaling factor” to normalize data.
define uncompensated care data for the purposes of this calculation as Worksheet S-10, Line 30.
In addition:
If cost to charge ratios (CCR) are greater than 3 standard deviations above the geometric mean for all hospitals, CMS will calculate a statewide average CCR for these hospitals and substitute the statewide CCR before computing UC costs.
CMS made slight revisions to S-10 cost reporting instructions on November 18, 2016, and indicated that no further revisions to the instructions will be made until audits of FFY 2017 data are reviewed. Per Transmittal 10, for cost reports beginning on or after October 1, 2016, charity discounts should be reported based on write-off date.
CMS also hinted that if the proposed methodology for calculating FY 2018 Factor 3 is finalized, they would expect a similar methodology to be proposed for FY 2019. FY 2015 Worksheet S-10 data would replace the FY 2012 low-income days in the 3-year average.
That wraps up a detailed look at Factor 3 from the FY 2018 proposed rule. If finalized, these changes will go into effect October 1, 2017. If you missed our deep dive into FY 2018 proposed Factor 1 or Factor 2, you can find them here: Factor 1 and Factor 2. We’ve got more articles on the FY 2018 IPPS proposed rule coming your way soon. Stay tuned.
