How the New 2017 IPPS Rule May Affect DSH Payment CalculationsThe Centers for Medicare & Medicaid Services (CMS) recently published their 2,434-page fiscal year 2017 Hospital Inpatient Prospective Payment System (IPPS) Final Rule. The hospital community eagerly anticipated this new arrival, especially its expected changes to Medicare disproportionate share hospital (DSH) payments. To illustrate the potential impact of the 2017 IPPS rule, we’ve highlighted three “bundles of joy” that may allow hospitals to maximize their future Medicare DSH reimbursements.

1. Medicare uncompensated care payments (Factor 3) will not be calculated using the Medicare cost report Worksheet S-10 for fiscal years 2017 or 2018.

Despite CMS’ earlier proposal to begin using Worksheet S-10 to calculate Medicare DSH, the agency will continue to use inpatient Medicaid and Supplemental Security Income (SSI) days as a proxy for calculating Medicare DSH uncompensated care. However, CMS will now employ an average value from a hospital’s cost reports for fiscal years 2011, 2012, and 2013 to calculate its uncompensated care payment for fiscal year 2017. Even after this decision, the Worksheet S-10 remains critical. In fact, the fiscal year 2017 Worksheet S-10 will be used to calculate Medicare uncompensated care payments beginning no later than fiscal year 2021.


Hospitals should review their previously filed Medicare cost reports –beginning with fiscal year 2014 – to ensure that they are complete and accurate. Medicare Administrative Contractors (MACs) will accept any amendments to a previously filed Worksheet S-10 for fiscal year 2014 through September 30, 2016.

2. The definition of uncompensated care for Medicare DSH purposes is set for fiscal year 2018 and subsequent years.

For Medicare DSH, uncompensated care will be comprised of the cost of charity care plus the cost of non-Medicare bad debt expense. Medicaid shortfalls will not be included.

3. Charity care on the Worksheet S-10 presents potential opportunities.

For cost report periods beginning on or after October 1, 2016, charity care will be reported based on the write-off date, regardless of the date of service. As October 1 approaches, hospitals may want to consider the timing and cost report implications of their charity care write-offs.

Further, page 870 of the final rule indicates that discounts offered to uninsured individuals may qualify as charity care for Worksheet S-10 purposes. According to the rule, CMS believes that “hospitals have the discretion to design their charity care policies as appropriate, and may include discounts offered to uninsured patients as ‘charity care.’”


Hospitals should strongly consider revisiting – and possibly revising – their existing charity care policies. Given CMS’ new guidance, updating these policies may help hospitals maximize their includable charity care on Worksheet S-10. This possibility is most interesting for hospitals that currently offer significant discounts to uninsured patients.

CRI Delivers Proactive Guidance on the New 2017 IPPS Rule

Although the 2017 IPPS rule is in its infancy, it is never too soon to start preparing for its potential effects on your healthcare organization. CRI is ready to assist you with steps you can take to maximize your future funding. Contact us today!