One of the most significant changes to Medicare DSH reimbursement was enacted by the Affordable Care Act (ACA) and implemented in the 2014 IPPS final rule. The change included the establishment of an Empirically Justified DSH component, or 25% of what DSH would have been under the pre-ACA formula. The ACA also established an uncompensated care pool totaling 75% of what DSH would have been as estimated by CMS for all hospitals combined under the pre-ACA formula adjusted for the change in the number of uninsured individuals nationally.
For now, let’s dive into the Empirically Justified DSH component. To review, the pre-ACA Medicare DSH payment is a formula driven by the SSI ratio and the Medicaid fraction. The sum of these two fractions determines a provider’s eligibility for Medicare DSH reimbursement and if so, dictates how much.
Why a Reduction?
The original intent of the Medicare DSH payment was to supplement providers who treated higher percentages of low income Medicare patients because the costs to treat those patients were more expensive. In the 2007 MedPac Report to the Congress on Medicare Payment Policy, they concluded that in 2004, only 25% of DSH payments were empirically justified to cover the higher costs and the remaining 75% wasn’t necessarily warranted for the program’s intentions. And thus, DSH payments for discharges beginning 10/1/13 are reduced to 25% of the traditional DSH payment a provider received prior to ACA.
What This Means For the Provider?
Simply put - the provider will continue to calculate their DSH reimbursement as they have in the past but the cost reporting software formula will account for the reduction to 25% for discharges beginning 10/1/13 for worksheet E Part A, Line 34. Final eligibility will be determined and payment amount adjusted at cost report settlement by the provider’s MAC if needed. The DSH reimbursement due to the provider may be amended up until cost report settlement has been finalized, provided your MAC will accept an amended cost report. However, it is imperative that providers invest resources in the as-filed cost report process to ensure the accuracy and completeness of their Medicaid days for the DSH calculation in accordance with program regulations and instructions.
25%! That’s it?
Not necessarily. There is a second component of the payment calculation associated with the remaining 75% referred to as the Uncompensated Care distribution that a provider may be eligible for provided they meet the Empirically Justified DSH Payment criteria.
Hmmmmmmmmm…….
Do you know the size of the empirically justified component in 2015? What about your share? Is your overall reimbursement increasing or decreasing (or both along the way) due to the new methodology? Fill in your “Do you know”? We have our thoughts on how the new methodology will affect providers, what are yours? Leave a comment below!
Next up - THE UC COMPONENT…