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The U.S. District Court recently ruled that the formula for calculating Medicare disproportionate share hospital (DSH) payments is flawed. Below is a brief summary of the court case, its history, and how it could affect hospitals.
This is a sample article from HFMA's Payment & Reimbursement Forum, a discussion and networking community for managed care, reimbursement, and finance leaders in hospitals and health systems.
Learn more about the Payment & Reimbursement Forum
The legality of including Medicare Advantage days in the Medicare DSH formula.
Medicare Advantage—also known as Medicare Part C—was established by Congress as part of the Balanced Budget Act of 1997. For a Medicare beneficiary to enroll in Medicare Advantage, he or she must be “entitled to benefits under Part A and enrolled in Part B.” Once the beneficiary elects Medicare Advantage, that beneficiary’s benefits are no longer administered under Part A.
In 2003, in a notice of proposed rulemaking, the Secretary of the Department of Health and Human Services (HHS) stated that “once a beneficiary elects Medicare Part C, those patient days attributable to the beneficiary should not be included in the Medicare fraction of the DSH patient percentage. These patient days should be included in the count of total patient days in the Medicaid fraction (the denominator), and the patient’s days for the [Medicare Advantage] beneficiary who is also eligible for Medicaid would be included in the numerator of the Medicaid fraction.”
However, in the 2004 final rule, the Secretary reversed course and announced that Medicare Advantage beneficiaries should not be included in the Medicaid fraction but instead in the Medicare fraction. The Secretary codified the change in FY07.
In 2009, Allina Health and 26 other hospitals filed suit with the U.S. District Court asking that the final rule—as codified in 2007—be vacated.
On November 15, 2012, the U.S. District Court issued a summary judgment on behalf of the 27 hospitals requiring that the Secretary’s final rule of 2004, codified in 2007 and further modified in 2010, be vacated and the case remanded back to the Secretary for further action. The court found that the reasoning for the change was “brief and unconvincing,” and held that the rulemaking was arbitrary and capricious.
In early January 2013, the U.S. District Court ordered HHS to recalculate certain Medicare DSH payments for more than 100 hospitals and pay interest on any additional amounts owed.
It is anticipated there will be a rule change/clarification issued related to the inclusion of Medicare Advantage in the Medicaid fraction and the reversal of the inclusion in the Medicare fraction.
It is possible that the lower Supplemental Security Income (SSI) percentages released in FY12 were, in part, related to the inclusion of the Medicare Advantage days in the Medicare fraction. Organizations can expect the HHS Secretary to republish the SSI percentages, removing the Medicare Advantage from the calculation and, in turn, pushing up the eventual SSI percentages for FY07-FY10.
Hospitals—especially urban hospitals that received Medicare DSH payments from FY07 forward and were not subject to a capped DSH percentage of 12 percent—may want to evaluate the significance of identifying dual-eligible Medicare Advantage days to be included in the Medicaid fraction. The following tool, which includes two case examples, can help hospitals with this evaluation.
Access tool: Recalculating DSH Payments to Account for Medicare Advantage Change
In the two case examples (see the two spreadsheets), you can see what the impact might be to two different acute care hospitals with different payer mixes located in urban areas.
This article was adapted from materials provided by David A. Williams, CPA, MPH, FHFMA, partner at Horne LLP, Ridgeland, Miss., and a member of HFMA’s Mississippi Chapter (email@example.com).
Publication Date: Monday, January 28, 2013
In this Business Profile, Bruce Haupt, president and CEO of ClearBalance, discusses how a patient loan program can increase patient collections, reduce bad debt, and speed cash flow.
In this Business Profile, Jerry Bruno, principal with Deloitte Consulting LLP, discusses the importance of choosing revenue cycle solutions that help an organization meet the challenges of a quickly evolving healthcare environment.
In this business profile, Lane Jackson, a partner in the Grant Thornton LLP Health Care Advisory Services practice, with extensive experience in overseeing system implementations and revenue cycle reorganizations, discusses best practices for elevating revenue cycle performance during an EMR implementation. Grant Thornton LLP is a sponsor of the Large System Controllers Council Affinity Group.
In this business profile, Amy Gross, senior vice president of Key Government Finance, discusses the benefits of private placement transactions to support large-scale financing projects.
In this business profile, Doug Polasky, executive vice president at Xtend Healthcare, explains the importance of having sound workflow processes in a consolidated business office to ensure optimal performance and reduce costs.
In this business profile, sponsored by SSI, Jay Colfer, vice president of sales and marketing, shares how patient access solutions are reversing the trend toward increased bad debt resulting from the rise in high-deductible consumer health plans.
In this business profile of Deloitte Consulting, Matthew Hitch and David Betts explore the potential benefits of elevating the customer experience and outline strategies to change service delivery.
TriMedx helps health systems control costs and uncover savings opportunities by optimizing the clinical engineering function.
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