Southwest Consulting Associates Blog

IPPS Proposed Rule 2018: Factor 3 - CMS Digging Heels In

Posted by Michael Newell on Jun 22, 2017 1:10:34 PM

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dig your heels in tug of war.gifOn April 28, 2017, CMS published the FFY 2018 IPPS Proposed Rule in the Federal Register.  Go HERE for our summary of the Medicare DSH/Uncompensated care payment portion of the rule.  After years of discussion to use Worksheet S-10 uncompensated care data to distribute the Medicare DSH/UC pool always ending with CMS “kicking the can down the road”, it appears that CMS has finally dug their heels in.  Who else just had a moment of deja vu?  


Last year, as part of the 2017 IPPS Proposed rule, CMS proposed to begin using uncompensated care costs per worksheet S-10 beginning in 2018. However, as you know, in the final rule, CMS did not finalize the use of Worksheet S-10 to distribute the uncompensated care pool.  Not much changed in the one-year since then, however, CMS has again proposed to begin incorporating UC costs from worksheet S-10 for the distribution of the UC pool beginning in federal fiscal year 2018.  This time though, we think they are going to stick to it.  


First, let’s go through a quick recap...If you remember last year, we told you that:

  • CMS was going to change the basis in which it distributed the UC pool

  • They were going to begin a transition from low-income days (defined as Medicaid days + SSI days) to uncompensated care costs per worksheet S-10

  • They were going to a three-year average methodology to both smooth out anomalies in the data and to transition S-10 into the calculation over three-years

Again, in the end, CMS reversed course and laid out a “plan” to migrate to the use of worksheet S-10 over a period of time after some changes and reforms were made to the instructions, the audit approach, etc. CMS agreed with provider concerns that:

  • S-10 instructions lacked clarity

  • Even though the distribution of the pool is a zero sum game, large swings among individual hospitals would occur

  • The agency needed to continue with its quality control efforts with regard to S-10 data and that they should explore alternatives until S-10 was ready for use, which they indicated would be several years off

Since the FY 2017 final rule was released:

  • CMS issued revised instructions (Transmittal 10) which really only dealt with the change in how charity charges are reported, that being from date of service to date of write-off

  • They updated its benchmark analysis

    • As described in the IPPS proposed rule 2018, CMS has been comparing data reported on worksheet S-10 to data reported on the IRS form 990 for non-profit hospitals. This analysis has reflected, in the most recent version, an 85% correlation in the data and CMS concludes that due to the high correlation, the S-10 data should be suitable for use

  • CMS accepted revised cost report submissions for which approximately 25% of hospitals updated their Worksheet S-10 per Transmittal 1681

The language in the FY 2018 proposed rule takes on a different tone than in the FY 2017 proposed rule and that is why we believe that CMS will finalize using Worksheet S-10 in the Factor 3 calculations to distribute the uncompensated care pool.  Throughout the FY 2018 proposed rule, CMS is trying to tell a story that leads to their ultimate desired conclusion to begin using Worksheet S-10 in Factor 3 calculations.  Here are some excerpts that lay the groundwork to make their case:

  • “Hospitals on notice as of FY 2014”

  • “FY 2017 IPPS final rule…we’re postponing the decision…proceeding with quality control and data improvement measures to the worksheet S-10 instructions

  • “Worksheet S-10 accuracy had improved over time”

  • “Worksheet S-10 uncompensated care data are becoming more stable over time”

  • “Correlation coefficient between…IRS Form 990 and Worksheet S-10 had increased over time”

  • “FY 2014 worksheet S-10 data had changed…for approximately one quarter of hospitals” (due to Transmittal 1681)

And then finally, “we have reached a tipping point with respect to the use of S-10 data. Specifically, we can no longer conclude that alternate data are available…..that are a better proxy for costs of subsection (d) hospitals for treating individuals who are uninsured than the data on uncompensated care costs reported on worksheet S-10”


Only time will tell what CMS ultimately decides to do with regards to finalizing the use Worksheet S-10 to determine a qualifying hospital's uncompensated care payment.   We’ll leave it up to you to decide if the plan will stick this time – but for what it is worth, based on the language used in the proposed rule as detailed above, we believe that the change will be made this time and that providers should prepare themselves as best they can to deal with this significant change.  This is not a drill.


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Southwest Consulting Associates Worksheet S-10 blog

Topics: DSH Reimbursement, Medicare DSH Reimbursement, uncompensated care, S-10, regulations, proposed rule, worksheet s-10, factor 3

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The climate of provider reimbursement is ever-changing and this blog is intended to keep you up-to-date on the latest information regarding:

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