Southwest Consulting Associates Blog

Robust Factor 3 Comments Not Enough to Sway CMS & 2018 IPPS Final Rule

Posted by Michael Newell on Sep 5, 2017 12:53:25 PM

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buried in paperwork.jpgAs we all now know, CMS proposed transitioning to the use of uncompensated care cost per worksheet S-10 in the IPPS 2017 rulemaking cycle. For many reasons that we have discussed in the past and that CMS reiterated in the last rulemaking cycle, that plan was not finalized. And although many people were left thinking that CMS was going to make some reforms to the definitions and reporting processes before going forward, they did leave the door open just a bit last year with regarding to moving forward with the change to S-10 in FY 2018. As we now know, they chose to squeeze through that opening and have finalized plans to begin the transition to using worksheet S-10 beginning in FY 2018. As overall justification, CMS stated:


“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 better for costs of subsection (d) hospitals for treating individuals who are uninsured than data on uncompensated care costs reported on worksheet S-10” ~CMS


So, for FY 2018 CMS will be using a blend of low-income days for 2012 and 2013 and uncompensated care costs per worksheet S-10 for FY 2014 to determine Factor 3. CMS finalized other methodological considerations to address some of the anomalies in the data, most of which came from the proposed rule with the exception of one related to benchmarking UC costs to total operating expenses and utilizing a proxy value for hospitals who report UC cost data outside the benchmark.


Now, for those of you that don’t support this change in methodology, at least not for now, another big push was made by commenters to try to get CMS to change its mind prior to the FY 2018 IPPS final rule release. Some of the justifications for deferring this change included:

  • The data is not reliable

  • The data is not a reflection of uncompensated care costs

  • Reliance on the correlation to IRS 990 forms is misplaced as those forms aren’t audited and several hospital types are not represented in the analysis and that may skew the results. In addition, states are not equally represented in that analysis.

  • There is a lack of clear and concise line level instruction to complete S-10

  • Strict auditing processes should be implemented before using the data

  • There are still anomalies in the data that are impacting the distribution of the dollars

  • Some commenters stated “that the aberrant numbers reported by some hospitals illustrate some combination of misinterpretation of Worksheet S-10 instructions, lack of clarity of those instructions, and possible attempts by providers to maximize their Medicare DSH dollars.”

  • MedPAC commented that hospitals charges may be in error and they advocated implementing a benchmarking mechanism...we will be talking more about that later.

  • There were many other comments that just stated displeasure about the redistributive nature of the change

Data anomalies were also referenced in many comment letters and there are two in particular that we will make mention of from those comment letters.  


The first is in regards to S-10 charges to gross hospital charges.  The national average of this ratio is 24%.

  • 116 hospitals had charges that more than doubled 24% and were projected to get $942M in UC payments

  • Over 30% of the 116 hospitals had S-10 charges greater than 70% of total charges and they would get $374M of the pool

  • 7 hospitals exceeded 100%

  • 4 hospitals exceeded 1000%

  • Of the top 20 hospitals with the largest increase in UC payments, all but 3 had S-10 charges to gross charges of > 50%

The second is in regards to charity charges for insured patients.  The expectation is that amounts on worksheet S-10, line 20 column 2 would always be less than line 20 column 1 because line 20 column 2 should include only deductible and coinsurance amounts. The national average of the ratio of line 20 column 2 to line 20 column 1 was 16%.

  • 375 hospitals were greater than 50% and would receive UC payments of $961 million

  • 185 hospitals were greater than 100% and would receive UC payments of $521 million

  • Some hospitals reported no charges on line 20 column 2

  • Some hospitals reported negative charges on line 20 column 2

Really, the primary point here is that the comments and examples were plentiful and robust, and most of them have been stated many times before. What makes this interesting is, even with all of that, CMS politely thanked the commenters in the final rule; they acknowledged that many of these comments have been received since rulemaking going back to 2014, but hospitals have been on notice for years that S-10 will eventually be used. And, since the data has improved over time, CMS decided to move forward with the change.


Hospitals will need to get their ducks in a row because Worksheet S-10 is here for the foreseeable future.  Need recommendations on where to start? See our post on 2018 IPPS Final Rule: What To Do Now Recommendations. Curious how the shift to S-10 could affect your provider reimbursement over the next three years? We have a model that spells it out. Go HERE to request your complimentary provider analysis.



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P.S. Don't forget that providers have until September 30, 2017 to submit revisions for their FY 2014 Worksheet S-10 per an announcement posted on the CMS website and FY 2015 Worksheet S-10 per Change Request 10026, Transmittal 1863.


Topics: DSH Reimbursement, Medicare DSH Reimbursement, S-10, regulations, final 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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