The 2016 IPPS Final Rule was published in the Federal Register on August 17, 2015 and will be effective October 1, 2015. Below is SCA’s “as brief as we can make it” summary on the rule as it affects disproportionate share hospitals (DSH). We will be rolling out more detailed analysis in the coming weeks with our 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:
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 2016 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 ultimately through the settlement of the cost report. The net result is Factor 1.
CMS Office of the Actuary estimates FY16 DSH at $13.411 billion. This estimate is based on the March 2015 update of 2012 cost report data included in the HCRIS database with additional payment factors applied.
2016 Factor 1 ≈ $10.058 billion ($13.411 * 75%)
For reference, Factor 1 for FY 2015 as estimated by CMS was $10.038B.
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 11% in FY16 which yields a Factor 2 of 63.69% and a UC Pool of $6.406 billion (≈ $10.058B * 63.69%).
Please note, the 63.69% Factor 2 estimate remained unchanged from the FY 2016 proposed rule. For more information on the Factor 2 formula and FY 2015 comparison, click HERE.
Factor 3
Factor 3 determines a qualifying DSH’s portion of the UC reimbursement pool. Low-income insured days (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) but use the most recent cost report data from the March 2015 HCRIS database. The stated reason for doing this was to give providers more time to update reported Medicaid days through cost report amendments as well as additional time for the MACs to consider and accept the data. The final rule also incorporates SSI days from the recently published FY 2013 SSI percentages.
Assuming CMS uses the same timing methodology and that low-income days are again used as the uncompensated care proxy for the FY 2017 IPPS rule, providers should submit FFY 2013 cost report amendments to their MAC for review and acceptance as soon as possible.
S-10
In the FY 2016 proposed rule, CMS used similar verbiage from prior years with regard to using uncompensated care costs from S-10 for Factor 3. They reiterated their desire to eventually use S-10, but again acknowledged the inconsistencies with S-10 data being reported. It had appeared that CMS was continuing to “kick the S-10 can” down the road, UNTIL NOW. In the FY 2016 final rule, CMS states that, “it is our intention to propose introducing the use of Worksheet S-10 data for purposes of determining Factor 3 within a reasonable amount of time. At this time, we are considering a possible timeline for using Worksheet S-10 data to calculate Factor 3, and we intend to discuss this further IN THE FY 2017 IPPS PROPOSED RULE, which is typically released in April of the preceding fiscal year.”
Future posts will summarize the comments and responses on the use of Worksheet S-10 for Factor 3 determinations. What is clear NOW is that CMS is poised to act and providers should be reviewing their policies and procedures as well as the data reported on Worksheet S-10 for completeness and accuracy.
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