Through the Affordable Care Act (ACA), substantial changes were made to the former Medicare Disproportionate Share (DSH) payment methodology and those changes continue to cause a great deal of confusion on many levels. One recurring theme is the notion that hospitals are only getting 25% of what they used to get and of course, that is not true. However, while the former DSH payment methodology only comprises a portion of the new total payment, hospitals should be focused on what the total expected new payment might be both today and in the future.
The new DSH/UC payment methodology is comprised of two components - the so-called empirically justified component and a pro-rata share of a national uncompensated care pool established by CMS via estimates. Without getting into the details (go HERE for those), a hospital's total DSH/UC payment is the sum of 25% of what the hospital would have received under the old DSH formula and a pro-rata share of the remaining 75% pool after an adjustment is made to reflect the change in the number of uninsured individuals nationally.
Using data recently published by CMS for fiscal year 2015, the “75% Pool” was reduced by 23.81% and will comprise of only 69.57% of the total expected payments. Overall for 2015, what would have been a $13,383,462,196 billion program is now a $10,993,510,434 billion program and the difference represents hospitals’ contribution to the cost of the ACA insurance program.
How does this translate into dollars for a given hospital? Is it 95%, 90%, 80% or even as low as just 25% of what would have been received under the former DSH payment methodology? Right now, this is the million dollar question. Truth be told MOST hospitals are getting much more than just 25% of the Medicare Disproportionate Share reimbursement that it had historically received. But, these hospitals are also getting some amount less than they previously received and that some amount is changing from year-to-year (hence the rollercoaster), by big dollars in many cases.
The future is difficult to predict especially in light of the fact that CMS is expected to change the current methodology used to distribute the largest portion of the total funding (S-10 vs. SSI/XIX days). Based on the data for all hospitals eligible for the DSH/UC payment, the total DSH/UC payments in FY 2015 are diminished to an average of 82.14% of what a hospital was previously receiving under the old DSH formula. However, the range around this average could be quite wide depending on the quality and accuracy of the Factor 3 data being reported on cost reports. Medicaid expansion and market demographic changes will also affect a hospital’s potential reimbursement and unfortunately, this is difficult to quantify in advance.
So, here are additional considerations to think about:
- What effect does the decision to expand or not expand have on a hospital’s projected DSH/Uncompensated Care payments?
- What resources should a hospital be investing into protecting its piece of the pie?
- Should it be less than a hospital was investing in the past when the formula was well known, more variable and hospitals weren’t competing for a fixed sum of dollars like they are now?
Hospitals should be developing strategies both internally among their management teams as well as with their external partners to ensure that they are protecting their piece of the pie. Greater resources should be dedicated to reporting Medicaid days on the as-filed cost report in addition to any amendments to meet the accelerated deadlines (more on this later) for computing a hospital’s Factor 3. And finally, hospitals should be developing forecasting models to assess potential future impacts. We would be happy to discuss your specific circumstances and approach to modeling these changes as well as discuss what assistance SCA may provide to your efforts. Please do not hesitate to contact us.