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S-10 reporting: Boost DSH payments, reduce risk, ace your audit

July 27, 2020 Article 9 min read
Sue W. Marr
Worksheet S-10 reporting is complex — even for experienced healthcare reimbursement, patient accounting, and IT professionals. To optimize reimbursement and improve compliance, consider these steps.
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Last year’s changes to Medicare Worksheet S-10 reporting requirements and reimbursement calculations for Disproportionate Share Hospital (DSH)/uncompensated care payments brought with them a double-whammy. First, healthcare providers may be leaving money on the table due to issues we’ll get into shortly. At the same time, CMS uncompensated care audits are increasing sharply. Industry experts close to the subject suggest that nearly all providers should expect an audit of their fiscal year 2017 cost reports as well as increased scrutiny on subsequent submissions. While the COVID-19 pandemic has delayed those audits and submission dates, we don’t expect it to significantly change the percentage of providers selected for review. In short, it’s not a question of if your hospital or health system will be audited, but when.

Ambiguity in reporting requirements and lack of consistency in interpretation among reporting hospitals compound the impact of the changes. In addition, uncompensated care reimbursement — historically based on a three-year average of a provider’s filings — is now based on one year. This means the impact of errors or underreporting has a greater financial impact and can lead to unnecessary cash flow fluctuations. Furthermore, uncompensated care is likely to rise in a post-COVID-19 economy as increased unemployment leads to insurance loss and reduces patients’ propensity to pay.

It’s not a question of if your hospital or health system will be audited, but when.

All these factors point to the significance of Worksheet S-10 and its financial and compliance implications. It’s important to take a fresh look at your charity care, financial assistance, and bad debt policies now. Healthcare providers must understand the nuances of what can (and can’t) be included in uncompensated care reporting, the documentation requirements, and patient accounting practices for accurate categorization and patient accounting transactions. This will help ensure you can generate a clean log for your Worksheet S-10 reporting to maximize reimbursement for uncompensated care and be well prepared to ace that (very likely) audit.

Background to uncompensated care and Worksheet S-10

Uncompensated care includes charity care, non-Medicare bad debt, and nonreimbursable Medicare bad debt. In the past, Worksheet S-10 was a cost report schedule used mainly to calculate electronic health record incentive payments. The DSH payment calculation went into effect on Oct. 1, 2014, as a result of the Affordable Care Act, with 25% now going directly to hospitals according to the historical DSH formula and 75% directed to a national uncompensated care pool to be shared among qualifying hospitals each year.
In fiscal year 2017, the federal pool made $5.7 billion available for uncompensated care. The 2020 pool makes available over $8.5 billion and that amount shrinks slightly for 2021 to $7.9 billion. Allocation from the pool is a “zero-sum game,” with qualifying hospitals competing for a pro rata portion on an annual basis. Current calculations estimate that applicants receive between 20 and 25 cents on each submitted dollar.

Uncompensated care reimbursement — historically based on a three-year average of a provider’s filings — is now based on one year.

In addition to now auditing the charity care listing (which previously wasn’t audited), CMS may also use Worksheet S-10 reporting to determine calculations other than DSH payments making accuracy all the more important.

Action items to minimize risk, improve compliance, and maximize payment

Worksheet S-10 reporting is complex and an area even experienced healthcare reimbursement, patient accounting, and IT professionals struggle with. The following steps will help make your reporting process more efficient, accurate, and supportable while reducing opportunity costs of staff diverted from their core competencies.

1. Review your charity care, financial assistance, and bad debt policies.

 Review your hospital’s policy and procedures for proper inclusion, i.e. which codes should be pulled for charity care and financial assistance policy adjustments as well as for bad debt. Ensure all Medicare bad debt is included since Medicare bad debt reimbursement will be deducted from your total uncompensated care calculations. Also, be sure that publicly stated policies — including those posted on your organization’s website — are consistent with the policies followed by your patient accounting teams.

Be prepared with patient-level detail to support both charity care and the bad debt reported on Worksheet S-10. This is no small task as many data elements are associated with each transaction. Support should include:

  • Patient-detailed Medicare and non-Medicare bad debt listings with reconciliation of bad debt write-offs to bad debt reported on Worksheet S-10, line 26.
  • Your hospital’s charity care and/or financial assistance policy.
  • Your hospital’s procedures for determining insurance status and charity care write-offs.
  • Comparison of current vs. prior year charity care charges from your audited financial statement with an explanation of any significant changes and reconciliation between your detailed listing and the amounts reported on your S-10.

2. Ensure your policy and procedures match actual practice.

 Assess the care you’re providing against your transaction codes. Do they match how you actually handle patient accounts so that all unpaid care that qualifies as charity care and as bad debt is reported? Areas we often see hospitals overlook include deceased patient, bankruptcy, and presumptive care policies. The approval and adjustment processes are mostly manual and susceptible to inconsistencies in staff understanding and application of policies and procedures. As you review your policy and procedures, are you discussing and evaluating how you treat these types of patient accounts?

Consider the transaction codes you’re using to identify any procedures that may not have been recognized by your reimbursement team but may be claimable. A 30% self-pay discount for a cosmetic procedure, for example, might work fine from an accounts receivable perspective, but when you pull your uncompensated care data, that account will be listed even though it shouldn’t be if your charity care policy doesn’t include medically unnecessary services. Charges for such noncovered services, exhausted benefits, or non-covered charges must be specified in your charity care and financial assistance policies in order to be appropriately included or excluded in your uncompensated care S-10 reporting. In the cosmetic procedure above, the hospital could consider a unique identifier such as a specific code for cosmetic procedures, or use a location/service code to enable elimination of these types of discounts from the charity care population. You can still offer a patient discount, and then assign a special code so that it’s charity-eligible.

You may find your organization’s bad debt proportionately higher than in recent years.

Finally, are all staff consistently using your transaction codes? On more than one occasion, we’ve asked patient accounting managers at the same hospital (sometimes sitting next to one another) how they apply particular codes. Ideally, there’s only one right answer. Staff training, automated processes, and consistent, ongoing monitoring and quality assurance all can help.

3. Strive for consistency in patient accounting practices.

Just as you need transaction codes to be used consistently, you also need consistency in patient accounting practices. This is especially challenging following accounting system upgrades and mergers and consolidations when hospitals in the same health system may be using different patient accounting systems — with or without a centralized reimbursement function. Differing charity care and financial assistance policies, and different processes for documentation storage and retrieval don’t help. For example, given how accounts cycle from initial charges to final payments and adjustments and zero balance, it’s not uncommon to have patient accounts with a two- or three-year lifespan. Take the patient who receives services in 2017 and the hospital writes the account off in 2019. How are you ensuring consistency across staff, hospitals, and patient accounting systems in these situations?

4. Conduct a mock audit.

 We understand that bandwidth is hard to come by but try to test some claims. Pull your charity care listing and go through a rigorous quality assurance process that mimics what you would undergo during an audit.

  • Select a sample of patient claims across inpatient, outpatient, insured, and uninsured groups as well as across hospitals if you’re part of a multihospital system.
  • Select some patient accounts with high-dollar items as well as a random sample across all amounts.
  • If your system had a merger or other important organizational or policy change related to charity care, focus on particular claims that might be impacted (and consider how far back you should be going to look for these claims).
  • Take a close look at your financial assistance and charity policies. Do they indicate that noncompensated charges that are written off qualify for charity care?
  • Review the transaction codes included in your uncompensated care calculations — which are Medicaid adjustments, and which are charity care?
  • Are your self-pay and balance-after-insurance uncompensated care amounts appropriately identified and separately reported?

For your sample of patients:

  • Check the patient account history. Does it exist, and does it match the claim?
  • Verify the submitted claim exists (where applicable) and matches the account history. Do the same with the remittance advice.
  • Verify the charity care application exists (including submission of all supporting material), the application was approved, and the patient was eligible on the date of service.
  • Verify the amount was written off.

The most common issues we see during the QA and audit process (and that make it challenging to pull a clean log for your S-10 reporting) include:

  • Duplicate (or triplicate) accounts with the same amount written off.
  • Write-off amounts greater than total charges.
  • Credits and debits that aren’t accurately captured. Claimed amounts are often classified as self-pay when they should be balance-after-insurance, or vice versa.
  • Courtesy allowances or discounts given to patients that do not meet the hospital’s charity care policy.

Document your findings, observations, and recommendations. If you discover things that can’t be claimed this year, put practices and processes in place to improve for next year.

5. Consider communications and control environment factors.

 As you consider the control environment in your hospital or health system, ask:

  • Who’s responsible for oversight, performance, and review of the uncompensated care log and S-10 reporting?
  • Are all the right people at the table, involved in reporting, and invested?
  • What training is currently in place or needs to be implemented to stay up on regulations and reporting requirements?
  • What’s the review and sign-off process for S-10 reporting?
  • What systems are in place for ongoing monitoring of uncompensated care tracking?
  • Has there been an analysis on the impact to the organization of capturing and reporting uncompensated care?

6. Assess and prepare for COVID-19 impact.

In addition to potentially delaying S-10 audits, the COVID-19 pandemic is likely to result in more hospitals providing charity care and greater numbers of patients unable to pay their balances. How is your hospital or system addressing this reality? Some are extending payment dates and payment plans but even so you may find your organization’s bad debt proportionately higher than in recent years.

Minimize audit disallowances, maximize efficiency

Don’t be afraid to engage an outside specialist to pull your cost report, test the data, and prepare your Worksheet S-10 for submission. Often that’s more cost-effective than trying to find available internal resources to create and verify the accuracy of your charity care listing on your own.

If your uncompensated care reporting isn’t supportable, you could be leaving money on the table.

In today’s challenging environment, hospitals need to optimize reporting and compliance to minimize audit disallowances. In simple terms, if your uncompensated care reporting isn’t supportable, you could be leaving money on the table. Don’t wait. Use the steps above to identify and address potential gaps in your S-10 reporting so you can be reimbursed to the fullest extent for the care you’re providing patients in need.

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