Southwest Consulting Associates Blog

For the last few weeks, we have been focusing on the Medicare DSH payment and how the payment calculation changed due to ACA.  

In today’s DSH/Uncompensated Care (UC)

reimbursement world, Medicaid

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.

Under the Affordable Care Act, Medicare disproportionate share hospitals (DSH) will be reimbursed under an uncompensated care (UC) model.  The amount of uncompensated care reimbursement received by a DSH is determined by 3 factors.  

Factor 3 determines a qualifying DSH’s portion of the UC reimbursement pool (Factor 1 x Factor 2).

Definition:  

a hospital-specific value that expresses the proportion of the estimated uncompensated care amount for each subsection (d) hospital...with the potential to receive DSH payments relative to the estimated uncompensated care amount for all hospitals estimated to receive DSH payments. - CMS

Under the Affordable Care Act, Medicare disproportionate share hospitals (DSH) are reimbursed under an uncompensated care (UC) model.  The amount of uncompensated care reimbursement received by a DSH is determined by 3 factors.

Factor 2 reduces the Uncompensated Care Pool (Factor 1) in conjunction with the changes in the uninsured rate.  

Under the Affordable Care Act, Medicare disproportionate share hospitals (DSH) will be paid under an uncompensated care (UC) model.  The amount of uncompensated care reimbursement received by a qualifying DSH is determined by 3 factors.

Facts:

Factor 1 establishes the uncompensated care pool.  CMS will estimate 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.

So your traditional DSH payment has been reduced to 25% but is that all the reimbursement you can expect going forward? Not necessarily…

Let’s recap!  As a result of ACA, the amount of total reimbursement a provider may receive for discharges beginning October 1, 2013, is now based upon two components:

• Empirically Justified DSH Payment

• Uncompensated Care (UC) Payment

The Empirically Justified 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):

1. 75% fixed pool of what DSH would have been as estimated by CMS for all hospitals combined under the pre-ACA formula

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.

Beginning with federal fiscal year 2014, the Affordable Care Act changed the methodology for reimbursing hospitals that treat a large percentage of indigent patients.  Are you up to speed on the changes?  In order to understand the changes implemented as a result of the Affordable Care Act (ACA), lets review the Medicare DSH reimbursement calculation as it was prior to the inception of ACA.

Pre-ACA Medicare DSH Calculation