Uncompensated Care Alert
Although the Medicare 2018 IPPS and LTACH proposed rule contains important updates regarding items such as the general payment rates, the Hospital-Acquired Conditions Reduction Program, the Hospital Readmissions Reduction Program, and other items, this alert highlights a change regarding the Medicare Uncompensated Care Payments that are paid as part of the Medicare Disproportionate Share Hospital (DSH) program. Uncompensated Care Payments are estimated to be approximately $7 billion for the federal 2018 fiscal year, which makes up a significant portion of the Medicare reimbursement paid to hospitals.
Since the creation of the Medicare Uncompensated Care Payment pool, beginning with the federal 2014 fiscal year, CMS has evaluated several options regarding the basis and methodologies surrounding the distribution of the pool. The overarching goal is that the pool be allocated based on each hospital's relative proportion of uncompensated care. Although CMS has indicated in past rule that it intends to use the Medicare cost reporting form S-10 as a basis, it had been determined that the data reported by hospitals in this form was incomplete and inconsistent. CMS has instead used a proxy combining the hospital's Medicaid eligible days and Medicare Supplemental Security Income (SSI) days to distribute the pool since 2014. The Medicare 2018 proposed rule outlines a change to the intended specific methodology that CMS plans to use going forward, which will now include the use of form S-10 data.
In the proposed rule, CMS is using the Medicare cost report form S-10 uncompensated care shortfalls generating from providing charity care to their patients, as well as bad debt (excluding Medicare bad debt) write-offs. In order to minimize the year-over-year impact of the change in methodology, CMS is also using an approach that phases in the S-10 data over three years. As such, the Medicare 2018 proposed rule currently outlines the approach of using the average of the following three factors:
- 2012 Medicaid eligible days and 2014 Medicare SSI days (2013 Medicare SSI days are used as a proxy in the proposed rule - however, they will be updated for the final rule).
- 2013 Medicaid eligible days and 2013 Medicare SSI days (2012 Medicare SSI days are used as a proxy in the proposed rule - however, they will be updated for the final rule).
- 2014 Medicare Cost Report S-10 charity care and non-Medicare bad debt cost.
Although this change in approach is being phased in over a three year period, it will have significant redistribution impact across hospitals. For the Medicare 2018 proposed rule, approximately $773 million will shift among hospitals as a result of the implementation of the S-10 data. This amount is estimated to increase to $2.4 billion - in three years, once the distribution is based solely on S-10 data and no longer incorporates the use of Medicaid eligible days or Medicare SSI days. As the number of hospitals expected to lose and gain under the change in methodology is nearly equal - at approximately 1,200, the average gain or loss for a hospital would be approximately $640 thousand in the federal 2018 year, which would increase to approximately $2 million once the allocation is based solely on the Medicare cost report S-10 data. These estimates are based on the overall pool amount of $7 billion and will change as the total pool amount is adjusted in future years.
This significant shift is driven by the two main factors highlighted below:
- The Medicare S-10 data used incorporates a hospital’s total inpatient and outpatient activity and also incorporates the use of the overall cost to charge ratio to determine the cost of care. The prior distributions have been based on Medicaid eligible days and Medicare SSI days. This excluded any consideration of the level of outpatient activity. With the incorporation of the Medicare cost report form S-10, inpatient and outpatient activity will be considered when calculating the cost related to charity care and non-Medicare bad debt. Also with the use of the overall hospital cost to charge ratio, the hospital’s efficiency will now impact the amount of shortfall reflected on the Medicare cost report form S-10, thereby impacting the distribution.
- The uncompensated care pool, up to this point, has been allocated using Medicaid and Medicare indigence as a basis. In the proposed rule, this will now be shifted to be based on charity care and bad debt as a basis. Hospitals in states with expanded Medicaid have seen a decrease in bad debt and charity care while experiencing an increase in Medicaid activity. These hospitals have benefited from using the Medicaid eligible and Medicare SSI days as a proxy. By using the S-10 data, which would not include Medicaid patient activity, this shifts distributions from states with expanded Medicaid to those who have not expanded Medicaid. We have estimated that over 17 percent of the pool will shift to hospitals in states without expanded Medicaid once the distribution is based solely on the Medicare cost report form S-10.
In order for hospitals to receive their full share of the uncompensated care pool in the future, they should be reviewing the detail submitted in their Medicare cost report form S-10. Note that the current proposed rule only utilizes the charity care and bad debt values from this form. Since the proposed rule could change upon issuance of the final rule later this year, we also recommend that hospitals review the data submitted in the other sections (such as Medicaid activity) to ensure that the data is also properly reported. One piece of a hospital's review should evaluate completeness - to ensure no portion of the patient populations were erroneously excluded. Hospitals should also review the "FY 2018 Proposed Rule DSH Supplemental File" that was issued with the proposed rule to ensure that all Medicaid eligible days, Medicare SSI days, and Medicare cost report form S-10 data is properly reflected.
We have performed a detailed analysis of the impact by provider and by state. If you are interested in the results specific to your organization, please submit a request by reaching out to one of the contacts listed to the right.
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