For many hospitals and facilities with large amounts of uninsured and Medicaid patient volume, Medicare disproportionate share hospital (DSH) payments have long been a vital and irreplaceable component of their overall reimbursement equation. While the Centers for Medicare & Medicaid Services (CMS) has been discussing potential changes to the Medicare DSH calculation methodology for several years, the agency has tossed its fiscal year 2017 inpatient prospective payment systems (IPPS) proposed rule. This rule indicates that changes to Medicare DSH are in play for the 2018 fiscal year.

The New Rules

The 2017 proposed rule suggests that the worksheet S-10 of Medicare cost reports is now reliable enough to be used in the calculation of the Medicare DSH uncompensated care payment. Specifically, beginning in the fiscal year 2018, an individual hospital’s Medicare DSH will be based partially on its uncompensated care cost reported on worksheet S-10 in proportion to totals of uncompensated care costs from all hospitals nationwide.

As is often the case with CMS changes, there will be a multi-year transition to the new rule. The proposed fiscal year 2018 calculation will rely on one-third of this new methodology (and two-thirds of the previous methodology). Fiscal year 2019 will use two-thirds of the new methodology, and the calculation will be fully implemented by 2020. The proposal states that a hospital’s worksheet S-10 from fiscal year 2014 will be used in the 2018 calculation, meaning that fiscal year 2016 will be the first year in which worksheet S-10 is fully utilized for future Medicare DSH uncompensated care payments.

Who Wins and Loses?

As with any CMS payment change, there will be winners and losers (in terms of funding distribution). Early data appears to indicate that Medicare DSH uncompensated care dollars will be redistributed away from larger hospitals and toward smaller and mid-size facilities. For-profits and some stand-alone, not-for-profit facilities will lose Medicare DSH dollars to governmental, safety net, and religious hospitals, as well as providers who typically have larger amounts of uncompensated care costs.

What is Your Hospital’s Plan?

Whether they expect to win or lose money with this new methodology, facilities would benefit from understanding how their reimbursements will change and how they compare to their peer groups. The proposed rule makes it possible for hospitals to calculate the impact of the new methodology under a “hypothetical” scenario in which the upcoming Medicare 2017 DSH uncompensated care payment was calculated using only fiscal year 2014 worksheet S-10 data.

Hospitals with an unexpected decrease in Medicare DSH – for example, a mid-size charity, governmental, or religious hospital whose Medicare DSH uncompensated care payment is expected to decrease – should analyze their fiscal year 2014 and 2015 worksheets S-10 to ensure that they are complete, accurate, and in accordance with CMS data. If a hospital makes any data errors or omissions, then it can bounce back by amending and refiling the cost reports to correct the errors.

Hospitals with an unexpectedly large increase in Medicare DSH, especially in comparison to their peer group, should celebrate their victory – and take steps to prepare and defend data against future audits conducted by Medicare administrative contractors (MACs).

CRInsightA MAC is a private entity with geographic jurisdiction to process Medicare claims for Medicare Fee-For-Service (FFS) beneficiaries.

One such step is to commission a “mock audit.” A mock audit of a worksheet S-10 involves an advisor using procedures similar to those of a MAC. These “mock audits” are very cost-effective and useful for discovering potential data errors or weaknesses and allowing facilities to correct such items before the actual MAC audits begin.

Team Up with CRI to Develop Your Medicare DSH Transition Plan

CRI’s healthcare team understands that hospital executives have been hit with reimbursement changes over the past few years and that it is difficult, if not impossible, to stay completely up-to-date. Our healthcare team can help you devise your Medicare DSH transition plan by quantifying the new rule’s impact on your facility, maximizing your future reimbursement, and reducing your exposure to future MAC audits. We can even provide you with your facility’s worksheet S-10 results for fiscal year 2014. Contact us to help begin developing your plan today!