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Medicare DSH

Posted by Jeff Norman on Nov 20, 2019 5:17:31 PM

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calculator-1516869_1920_Image by IMS68 from Pixabay In our realm of Medicare provider reimbursement, Worksheet S-10 has been the hot topic of late. It has certainly been a heavy focus for our last few webinars and blog posts and while Worksheet S-10 has captured the provider reimbursement community's attention, it is important not to lose sight of the Medicare Disproportionate Share Hospital (DSH) program. Now, the affordable care act initially changed the Medicare DSH calculation (hence the S-10 popularity), but there have been additional changes enacted in recent rounds of rule making that hospitals should be aware of when it comes to DSH. For this reason alone, we thought that it’s a perfect time to revisit the Medicare DSH calculation starting with a basic 101 and then expand on the changes in future posts.


What is the Medicare DSH adjustment?

The original intent of the Medicare DSH payment was to supplement providers who treated higher percentages of low-income Medicare patients because the costs to treat those patients were more expensive. According to the CMS website, "the Medicare DSH adjustment was enacted by section 9105 of the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985. This program became effective for discharges occurring on or after May 1, 1986."



According to the section of the Act mentioned above and the CMS website, "there are two methods for a hospital to qualify for the Medicare DSH adjustment.

  1. The primary method for a hospital to qualify for the Medicare DSH adjustment is based on a statutory formula that results in the DSH patient percentage," which we will review below.

  2. "The alternate, special exception method is for large urban hospitals that can demonstrate that more than 30 percent of their total net inpatient care revenues come from State and local governments for indigent care (other than Medicare or Medicaid)." This is referred to as the Pickle Method, and there are very few Pickle hospitals remaining.

The DSH patient percentage is the sum of two fractions meant to represent two at-risk populations, the under-served and the elderly and disabled. The Medicaid Fraction, consist of Medicaid eligible patient days that are not entitled to Medicare Part A & C divided all total inpatient days. The SSI Fraction, consists of Medicare Part A and C days where patients also have Federal SSI benefits divided by the total hospital Medicare Part A & C patient days.


Medicare DSH patient percentage


These two fractions are added to formulate the hospital’s disproportionate patient percentage (DPP) that is then applied to a statutory formula to establish a hospital's DSH percentage based on hospital type. There are slightly different formulas for urban and rural hospitals, but we won't get into that detail in this post. To qualify for Medicare DSH payments, hospitals must reach a 15% DSH threshold when these two fractions are summed.

Now, there are certain types of hospitals that are not eligible for Medicare DSH. Critical access hospitals (CAH) are one of those types. Additionally, there are others like Sole community hospitals (SCH) whose hospital specific payment is greater than their federal specific payment and Children’s hospitals do not qualify for participation.


Medicare DSH Reporting

The Medicare DSH amount is typically reported annually on Worksheet E part A of the Medicare cost report. Final eligibility is determined and could potentially be adjusted at cost report settlement by a provider’s MAC. The FY 2019 IPPS Final Rule stated that for cost reporting periods beginning on or after October 1, 2018, each DSH-qualifying hospital must now include, as part of the cost report filing, a detailed listing of its Medicaid eligible days that corresponds to the Medicaid eligible days claimed in the cost report (and supports the DPP shown above) as supporting documentation. This requirement affects the acceptability of the cost report. Again, without a detailed listing, a cost report will be deemed unacceptable and thus, your report will be rejected.  You can read more on this in our "Medicare Cost Report Supporting Documentation Requirements" blog.


Final Thoughts

In addition to changes enacted in recent rounds of rule making, Medicare DSH is a $4+ Billion program in FFY 2020. It is still a significant and important revenue stream for many hospitals. Qualification for Medicare DSH is a factor in other reimbursement programs as well. Medicare DSH qualification drives participation in the $8.35 Billion dollar Federal Uncompensated Care pool as well as the 340B Drug Discount Program. And unlike the UC pool payment, hospitals, in essence, have a greater ability to control their DSH reimbursement and in fact, have permission to revise itWe read almost weekly about how overall hospital reimbursement is declining, but Medicare DSH is growing, and hospitals have opportunities to optimize theirs based on how well they report their DSH data. Medicare DSH certainly still deserves a spotlight and we recommend that Medicare DSH hospitals evaluate their Medicare DSH reporting. 


Subscribe to our blog to learn more about reporting DSH data and how Medicare DSH fits into a larger UC payment model.

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Topics: DSH Reimbursement, Medicare DSH Reimbursement, cost reporting, Medicare Cost Report, provider reimbursement

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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:

  • DSH Reimbursement
  • 340B Pharmacy Drug Discount Program
  • Compliance Issues
  • Litigation Surrounding Provider Reimbursement

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