The massive nationwide redistribution of Medicare disproportionate share hospital funding is expected to shift funds from Medicaid expansion states to non-expansion states.


Oct. 9—Industry advisers are urging hospitals to double-check their charity care reporting this month in preparation for a major Medicare charity care policy change that is expected to shift the distribution of $2.3 billion annually among hospitals.

The Centers for Medicare & Medicaid Services (CMS) offered hospitals a chance this month to amend their data on Worksheet S-10 of the Medicare cost report from FY14 and FY15, using new instructions that expand the definition of charity care. Worksheet S-10 data from the cost reports will be used to calculate two-thirds of a hospital’s Factor 3 formula for uncompensated care payments in FY19.

The opportunity for hospital review followed CMS’s decision to begin using S-10 data to determine the distribution of $6.7 billion in annual Medicare uncompensated care payments.

“Everybody should be looking at this issue before the deadline,” said Mark Polston, a partner at King & Spalding.

Hospitals should review the amount of uncompensated care that they are claiming on Worksheet S-10 to maximize their share of the fixed pool of funding, he said.

The Oct. 31 deadline for hospitals to add data and resubmit those worksheets to their Medicare administrative contractors was an extension of a Sept. 30 deadline and included some CMS clarifications. For example, CMS clarified what counted as charity care and how hospitals should calculate the cost of non-reimbursable Medicare bad debt.

“If hospitals are not looking to determine whether their prior Worksheet S-10 submissions are conforming to these new understandings of these two definitions, then they may find themselves disadvantaged as compared to all other hospitals that are looking at these instructions,” Polston said.

More than 100 hospitals sought help from of Southwest Consulting Associates to perform S-10 compliance reviews for the initial deadline and many more have sought help since under the deadline extension, said Kyle Pennington, client relations manager.

The scramble to review S-10 data followed steep hospital opposition to using S-10 data in the methodology for determining uncompensated care payments. In comments on the Inpatient Prospective Payment System proposed rule, which finalized the new policy, the American Hospital Association (AHA) had urged a one-year delay in using S-10, to address the group’s lingering concerns over the accuracy and consistency of the data.

AHA also had urged a stop-loss policy to prevent a loss of more than 10 percent of DSH payments under the policy. The association calculated that more than 20 percent of hospitals would lose at least 10 percent of DSH payments by the time the policy was fully phased in over three years.

“The agency is moving too quickly to use a form that remains unclear in its construction and instructions, not consistently prepared by hospitals, and not yet subject to audit for accuracy,” Chip Kahn, president and CEO of the Federation of American Hospitals (FAH), wrote in comments to CMS about the plan to begin using S-10 data. 

Shifts Expected

CMS’s new approach is expected to lead to a massive nationwide redistribution of Medicare disproportionate share hospital (DSH) funding, underscoring the importance to hospitals of reexamining their S-10 data, Polston said.

“Using S-10 data, CMS has recognized, is going to have an enormous redistributive effect on uncompensated care payments,” Polston said.

Overall, the change is expected to shift such funding from hospitals in states that expanded Medicaid eligibility under the Affordable Care Act to hospitals in the 19 states that did not expand Medicaid.

Hospital clients of Southwest Consulting Associates in California and New York have seen the biggest expected losses under the new policy, while those in Texas and Florida have seen the biggest gains, said Jonathan Mason, senior manager of operations. Individual hospitals’ projected annual payment changes have totaled more than one million dollars, according to the reviews. He also has seen evidence that the payments will swing from not-for-profit hospitals to governmental hospitals.

“The big dollars are moving to governmental hospitals,” Mason said.

A projection conducted by DeBrunner and Associates for FAH concluded the new policy will result in a shift of $2.3 billion in such funding. Additionally, 10 percent of hospitals would increase their share of the overall Medicare DSH pool from 18.8 percent to 44.5 percent, or an increase of $1.8 billion, according to the projection.

“This means that 10 percent of hospitals would experience 77 percent of the total gains among all hospitals,” Kahn wrote. “Others would suffer significant losses, with no assurance that the underlying data is accurate enough to support such changes for either the winners or the losers.”

Keys to Watch

As hospitals reexamine S-10 data and submit revised data, Pennington urged a “deep dive” examination of their financial assistance policies and procedures, including charity care policies, bad debt policies, and self-paid discount policies. 

Other issues hospital executives should consider are changes that allow hospitals to include partial or total discounts to uninsured patients in their facility’s total amount of charity care.

Not-for-profit hospitals may have offered such discounts under either their charity care policy or their financial assistance policy.

The change could especially benefit hospitals that previously interpreted CMS instructions as prohibiting the inclusion of discounts for uninsured patients among their charity care charges, Polston said.

“If you don’t [include] that and every other hospital does, then your amount of uncompensated care payments will shrink proportionately,” Polston said.

Another key consideration for hospitals when reviewing the worksheet is to ensure their non-reimbursable Medicare bad debt expense was not reduced by their cost-to-charge ratio.

“So, every hospital probably has an opportunity to restate that number, and that number will be higher,” Polston said.

Hospitals that don’t restate the number will be similarly disadvantaged compared to hospitals that do.

Finally, Pennington underscored the need for hospitals to become “audit ready,” with patient detail information available to support data they submit on their S-10.

“CMS has stated that FY17 will be the first fiscal year that the cost reports will be subject to review by the MACs for Worksheet S-10 but CMS also has indicated that they expect more robust reviews to  be conducted for FY14, FY15, and FY16,” Pennington said.


Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Monday, October 09, 2017