CMS published an interim final rule with comment period revising certain operational considerations for hospitals with Medicare cost reporting periods that span more than one federal fiscal year. The rule also reflects changes to the data that will be used in the uncompensated care payment calculation in order to ensure that data from Indian Health Service (IHS) hospitals are included in Factor 1 and Factor 3 of that calculation. 

Background

Section 3133 of the Affordable Care Act (ACA) modifies the methodology for computing the Medicare disproportionate share hospital (DSH) payment adjustment beginning in fiscal year 2014 (FY14). Hospitals qualify for a DSH payment adjustment under a statutory formula that considers their Medicare utilization due to beneficiaries who also receive Supplemental Security Income (SSI) benefits and their Medicaid utilization. Starting in FY14, hospitals that are eligible for Medicare DSH payments will receive 25 percent of the amount they previously would have received under the current statutory formula for Medicare DSH payments. The remaining amount, equal to an estimate of 75 percent of what otherwise would have been paid as Medicare DSH payments, reduced for changes in the percentage of individuals under age 65 who are uninsured, will become available to make additional payments to each hospital that qualifies for Medicare DSH payments, and has uncompensated care. Each Medicare DSH hospital will receive an additional amount based on its estimated share of the total amount of uncompensated care reported for all Medicare DSH hospitals for a given time period.

Starting in FY14, hospitals that are eligible for Medicare DSH payments under the current statutory formula for Medicare DSH payments will receive two separate payments: the first of which will be 25 percent of the amount they previously would have received for DSH (‘‘the empirically justified amount’’); and the second, an additional payment for the DSH hospital’s proportion of uncompensated care, determined as the product of the following three factors:  

  1. 75 percent of the payments that would otherwise be made under subsection (d)(5)(F);
  2. 1 minus the percent change in the percent of individuals under age 65 who are uninsured (minus 0.1 percent for FY14, and minus 0.2 percent for FY15 through FY17); and 
  3. A hospital’s uncompensated care amount relative to the uncompensated care amount of all DSH hospitals expressed as a percent.  
New Indigent Care Payment 
The graphic is a chart providing further information on the new indigent care payment calculation.

Operational Considerations for Hospitals

In the FY14 IPPS Final Rule, CMS finalized a process to distribute interim uncompensated care payments under the IPPS on a per-discharge basis through its claims processing system, with a reconciliation of the hospitals’ uncompensated care payments at cost report settlement to ensure that hospitals receive no more than the estimated amount included in the final rule. Under this process, at cost report settlement, the fiscal intermediary or MAC will issue a reimbursement notice that determines whether each hospital is eligible for empirically justified Medicare DSH payments and is therefore eligible for uncompensated care payments in FY14 and each subsequent year. If a hospital received interim payments for its empirically justified Medicare DSH and uncompensated care payments for FY14 or a subsequent year on the basis of estimates prior to the payment year, but is ineligible for the empirically justified Medicare DSH payment at cost report settlement, the hospital would no longer be eligible for either payment and CMS would recoup those monies. Conversely, if a hospital did not receive interim payments for its empirically justified Medicare DSH and uncompensated care payments for FY14 or a subsequent year, but at cost report settlement is determined to be eligible for these payments, they will be calculated based on the Factor 3 value determined prospectively for that fiscal year. Thus, reconciliations at cost report settlement would be based on the values for Factor 1, Factor 2, and Factor 3 that CMS finalized prospectively for a federal fiscal year.

CMS believed this methodology would not delay the full payment of FY14 payments to hospitals with cost reporting periods that begin after October 1, 2013. However, when it prepared to implement the FY14 IPPS final rule, several difficulties regarding this approach that had not been previously considered occurred. CMS initially proposed to make interim uncompensated care payments on a bi-weekly basis, finalizing a different process to these payments on a per discharge basis in response to comments. In addition, CMS also proposed and finalized a reconciliation process that would reconcile the uncompensated care payment for a given fiscal year, such as FY14, on the cost report for the cost reporting period beginning in that fiscal year. CMS believed that this approach would be administratively efficient and practical. However, this process is inconsistent with longstanding cost reporting requirements because as a general rule, payments for discharges are reported in the cost reporting period in which they occur, and all payments made for discharges during a cost reporting period are reconciled on the cost report for that period.

For hospitals with cost reporting periods that are not concurrent with the federal fiscal year, the policy adopted in the FY14 IPPS final rule departs from these cost reporting requirements by reconciling interim uncompensated care payments made for discharges occurring during the hospital’s 2013 cost reporting period on the hospital’s 2014 cost report. Under ordinary cost reporting requirements, those payments (having been made during the hospital’s 2013 cost reporting period) would have to be treated as an overpayment on the hospital’s 2013 cost report and therefore recouped. However, as finalized in the FY14 IPPS rule, if the hospital was found to be eligible for DSH payments for its cost reporting period that begins during FY14, CMS would pay the hospital its full FY14 uncompensated care payment during the settlement of the hospital’s 2014 cost report (that is, it would repay the previously recouped uncompensated care payments when it reconciled the hospital’s 2014 cost report).

These administrative issues would effectively delay uncompensated care payments, frustrate the policy of making uncompensated care payments promptly, and would likely lead to serious cash flow difficulties for some hospitals. As such, CMS does not believe the policy it finalized in the FY14 IPPS final rule of reconciling uncompensated care payments for hospitals with cost reporting periods that begin after October 1, 2013, would work as intended for the large majority of IPPS hospitals that have cost reporting periods that are not concurrent with the federal fiscal year.

CMS’s Revised Process

To effectuate a revised process of reconciling uncompensated care payments, CMS intends to align final payments for the uncompensated care payment with each individual hospital’s cost reporting periods, and to reconcile interim payment amounts on the hospital’s cost report for the proportion of the cost reporting period that overlaps a federal fiscal year and in which the interim payments were made or should have been made. Thus, the final uncompensated care payment amounts that would be included on a cost report spanning two federal fiscal years would be the pro rata share of the uncompensated care payment associated with each federal fiscal year. This pro rata share would be determined based on the proportion of the applicable federal fiscal year that is included in that cost reporting period.

For example, if a hospital is estimated to be eligible for the empirically justified DSH payment and also an uncompensated care payment in FY14, and has a cost reporting period of January 1, 2014, through December 31, 2014, under the revised process CMS is adopting, in this example, the hospital would still begin to receive interim payments for its uncompensated care on October 1, 2013. However, instead of having the entire FY14 payment reconciled on its cost report for the cost reporting period beginning on January 1, 2014, (which ends on December 31, 2014, and would therefore require the hospital to pay back monies received for the portion of its cost reporting period beginning on January 1, 2013, that occurs in federal fiscal year 2014), CMS will reconcile the interim FY14 uncompensated care payments received for discharges from October 1, 2013, through December 31, 2013, on the hospital’s cost report for the cost reporting period beginning on January 1, 2013, against a pro rata share of its FY14 uncompensated care payment.

If this hospital is eligible for DSH on its cost report for the cost reporting period ending on December 31, 2013, it will receive a pro rata share of its FY14 uncompensated care payment. This pro rata share would be approximately one-fourth (that is, the period of time from October 1, 2013, through December 31, 2013, divided by the period of time from January 1, 2013, through December 31, 2013) of the hospital’s FY14 uncompensated care payment. If the hospital’s subsequent cost reporting period is January 1, 2014, through December 31, 2014, CMS will also reconcile the interim FY14 uncompensated care payments received for discharges from January 1, 2014, through September 30, 2014, on the hospital’s cost report for the cost reporting period beginning on January 1, 2014, against a pro rata share of its FY14 uncompensated care payment. 

CMS would also reconcile the interim FY15 uncompensated care payments received for discharges from October 1, 2014, through December 31, 2014, (that is, discharges occurring in FY15 during that hospital’s cost reporting period) on the hospital’s cost report for the cost reporting period beginning on January 1, 2014, against a pro rata share of its FY15 uncompensated care payment. Under the interim final rule with comment period, and in accordance with the policies finalized in the FY14 IPPS final rule regarding eligibility for the uncompensated care payment, hospitals with cost reporting periods that span more than one federal fiscal year will be eligible for the respective pro rata shares of their uncompensated care payment if they were eligible for DSH in that cost reporting period. If they were ineligible for DSH in that cost reporting period, they would be ineligible to receive the respective pro rata share of the uncompensated care payment for the respective federal fiscal year (or years).

CMS believes this new approach remains fundamentally consistent with the policy it finalized in the FY14 IPPS final rule, but, avoids the cost reporting difficulties that would have arisen from the reconciliation process originally adopted in the final rule.

Treatment of Indian Health Service Hospitals

Indian Health Hospitals (IHS) are subsection (d) hospitals that can receive empirically justified Medicare DSH payments if they meet the eligibility requirements under subsection (d)(5)(F). Therefore, eligible IHS hospitals will also receive the new uncompensated care payment. In the FY14 IPP final rule, CMS finalized its proposal to use the most recently available estimates, as calculated by the Office of the Actuary, to determine both the aggregate amount of empirically justified DSH payments and the aggregate amount of payments that would otherwise have been made under section 1886(d)(5)(F) of the Social Security Act. 

In order to calculate these estimates, the Office of the Actuary used the March 2013 update of the Medicare Hospital Cost Report Information System (HCRIS) and the proposed rule’s IPPS Impact file. Therefore, CMS revised the policy originally adopted in the FY14 IPPS final rule in order to change the data that will be considered in calculating Factor 1 for FY14 and subsequent years. Specifically, in addition to the March 2013 update of HCRIS, it will also consider supplemental cost report data provided by IHS hospitals to CMS as of March 2013. 

Following the issuance of the FY14 IPPS final rule, CMS was informed that although IHS hospitals can receive Medicare DSH payments, they submit Medicare hospital cost reports to CMS that are not uploaded in the HCRIS database. Because these hospitals are eligible to receive Medicare DSH payments and the new uncompensated care payments, CMS believes it is inappropriate to exclude the payments to these hospitals from the estimates used to calculate Factor 1. Specifically, in addition to the March 2013 update of HCRIS, CMS will also consider supplemental cost report data provided by IHS hospitals to CMS as of March 2013, and recalculate Factor 1 to reflect the Office of the Actuary’s estimate of Medicare DSH payments to these hospitals, based on this supplemental data. 

A DSH hospital’s Factor 3 is determined as the sum of its Medicaid days and SSI days (numerator) relative to the total number of Medicaid days and SSI days for all DSH hospitals (denominator). Under this policy, CMS would determine a hospital’s SSI days based on the most recent SSI fraction, which for FY14, is the FY11 SSI fraction. In addition, under the final policy adopted in the final rule, CMS would determine a hospital’s Medicaid days based on the Medicaid days reported on the 2011, or if not available, the 2010 Medicare hospital cost report, using the March 2013 update of HCRIS. Because the cost reports submitted by IHS hospitals are not uploaded into HCRIS, CMS did not include their Medicaid days in its calculation of Factor 3. Specifically, Medicaid days for IHS hospitals were excluded from the numerator of Factor 3 for those hospitals and from the denominator of Factor 3 for all hospitals.

As a result, CMS believes that the Factor 3 that was calculated for each IHS hospital under the policies adopted in the 2014 IPPS final rule, based only on FY11 SSI days, significantly understated the actual amount of uncompensated care furnished by these hospitals. The uncompensated care payment amounts calculated for these hospitals were also significantly lower than they would have been had these days been included. CMS is concerned that under the policy originally adopted in the FY14 IPPS final rule, IHS hospitals, which serve a significantly low income population, will be subject to the 75 percent reduction to their Medicare DSH payments under subsection (r)(1) but will receive reduced uncompensated care payments under subsection (r)(2) due to their cost reports not being included in the HCRIS database. 

Since CMS intended to base its estimate of the uncompensated care provided by IHS hospitals in part on the care they provide to Medicaid patients, it believes it is appropriate to make a change to the data that will be considered in determining Factor 3 of the new uncompensated care payment to allow the Medicaid days for IHS hospitals to be included. This change will also help to ensure that eligible IHS hospitals receive an uncompensated care payment that does not significantly understate the amount of uncompensated care they provide. Therefore, in the interim final rule with comment period, CMS revises the policy adopted in the final rule to consider supplemental cost report data submitted to CMS as of March 2013 only by IHS hospitals, in addition to data reflected in the March 2013 update of HCRIS, in calculating Factor 3 of the uncompensated care payment. The Medicaid days for IHS hospitals that are reflected in the supplemental data will be included in the numerator of the Factor 3 calculation for IHS hospitals, and will be included in the denominator of Factor 3 for all hospitals eligible to receive the uncompensated care payment.

Waiver of Proposed Rulemaking and Delay in Effective Date

CMS believes that there is good cause to waive notice and comment rulemaking to make the revisions to its policy for reconciling uncompensated care payments for hospitals with Medicare cost reporting periods that are not concurrent with the federal fiscal year. The methodology for reconciling uncompensated care payments adopted in the FY14 IPPS final rule goes into effect on October 1, 2013. There is insufficient time to undertake notice-and-comment rulemaking before that date. As a result, absent this interim final rule with comment period, it would be impossible to avoid administrative issues discussed in the rule. CMS will also waive notice-and-comment rulemaking to make changes to the data that will be used in the uncompensated care payment calculation in order to ensure that IHS hospital data are included in Factor 1 and Factor 3 of that calculation. CMS will waive the 30-day delay in the effective date for this interim final rule with comment period.

More Information

The interim final rule, effective October 1, 2013, was published in the October 3, 2013, Federal Register. Comments on the rule are due November 29, 2013.

Publication Date: Friday, November 15, 2013

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