Southwest Consulting Associates Blog

On August 2, 2016, CMS posted the 2017 IPPS final rule. While we will provide a comprehensive summary of the rule in the near future, this post relates to the changes that CMS is making regarding Medicare DSH reimbursement and the use of cost report worksheet S-10 to calculate factor 3 for federal fiscal years 2018-2021. As you recall, in the 2017 proposed rule, CMS indicated that it would begin using S-10 to calculate factor 3, at least in part, beginning in FFY 2018. However, in the final rule CMS states: 

In anticipation of the upcoming 2017 IPPS proposed rule (usually put on display in mid-April), SCA has been focusing our attention on the possible changes to the Uncompensated Care (UC) reimbursement program.  Use as your backdrop the following facts:

• The 2016 uncompensated care pool (UCP) is $6.4 billion and all “eligible” hospitals are fighting for a piece of that pie.

• If the most recent filed S-10’s are used, it appears that there will be a dramatic shift in UCP dollars among States.

• If the most recent filed S-10’s are used, it appears that there will be a significant redistribution of UCP dollars among hospital types, with the general theme being a shift from proprietary and non-profit hospitals to government-owned hospitals (in the hundreds of millions of dollars).

In a January 11, 2016 letter to the Medicare Payment Advisory Commission (MedPAC), the American Hospital Association (AHA) again addressed the issue of using cost report worksheet S-10 to distribute uncompensated care (UC) pool dollars and recommended that the change be phased in over three years.  

AHA stated that S-10 data has the potential “to serve as a more exact measure of the treatment costs of uninsured patients” if the data is reported accurately and consistently. AHA called for the revision of the cost report S-10 worksheet and improvement in its reporting instructions. AHA further called for “extensive” education for all stakeholders in advance of, or in conjunction with the use of the S-10 UC cost data. A copy of the letter is available 

OVERVIEW:

This is the first in a series of updates related to the new Medicare DSH payment under the Affordable Care Act (ACA), specifically as it relates to the identification of Uncompensated Care (UC) Cost as computed by the Medicare Cost Report Worksheet S-10. CMS, in its FY 2016 proposed rule issued in April 2015, simply stated that:

• “Because of concerns regarding variations in the data reported on Worksheet S-10 and the completeness of the data, we did not propose to use data from the Worksheet S-10 to determine the amount of uncompensated care for FY 2014.”

• For the same reasons stated above, CMS elected not to use S-10 data for FY 2015.

• CMS stated that, “For FY 2016, we believe it remains premature to propose the use of Worksheet S-10.”

So at first blush, it appeared that CMS just “kicked the can” down the road again and while the agency reaffirmed its objective of moving to S-10 as the Factor 3 methodology, it didn’t necessarily sound as if that change was just around the corner. At least not until CMS responded to the many public comments (published in the 2016 IPPS final rule) that it received in this latest round of rulemaking.

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).

The 2016 IPPS Proposed Rule for Acute Care Hospitals was put on display on April 17, 2015. All comments to the rule were to be submitted by June 16, 2015. As in past years, Southwest Consulting Associates (SCA) performed extensive analysis of the Proposed Rule and submitted detailed comments in response to CMS’ 2016 IPPS Notice of Proposed Rulemaking (NPRM). SCA’s comments primarily related to the proposed changes to the Payment Adjustment for Medicare Disproportionate Share Hospitals (DSH) including the Uncompensated Care (UC) payment component.

Earlier this week, the Department of Health and Human Services (HHS) released a brief projecting that 2015 enrollment through insurances exchanges will fall short of the original goals. The Congressional Budget Office (CBO) projected exchange enrollment of 13 million in its April 2014 report. The updated HHS projections place enrollment between 9 and 9.9 million.

Link:

HHS updated 2015 exchange projections

The concept of applying macro level projections of a new and politically charged healthcare system to actual reimbursement is faulty from the start.  There are too many variables to accurately predict final enrollment numbers. Many providers commented on the 2014 and 2015 proposed IPPS rules as to the potential impact of using enrollment estimates and asked for a reconciliation process to true-up projections to actual numbers.

Impact on Providers:

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