Under the Affordable Care Act, Medicare disproportionate share hospitals (DSH) are reimbursed under an uncompensated care (UC) model. The amount of uncompensated care reimbursement received by a DSH is determined by 3 factors.
Factor 2 reduces the Uncompensated Care Pool (Factor 1) in conjunction with the changes in the uninsured rate.
To determine the Factor 2 reduction, CMS utilizes a Congressional Budget Office (CBO) report that estimates the effects of the ACA on health insurance coverage, including Medicaid expansion (https://www.cbo.gov/sites/default/files/45231-ACA_Estimates.pdf). The CBO report projects the uninsured percentage for future years.
CMS calculates the change in the uninsured as compared to the pre-ACA 2013 baseline uninsured rate of 18%. The formula is also normalized to account for the ACA start date of 1/1/13 versus the federal fiscal year that runs 10/1 - 9/30. Finally, an additional reduction is incorporated into the Factor 2 formula. For FY 2014, the additional reduction equalled 0.1% percentage points and will increase to 0.2% percentage points for FY 2015-2017.
Like Factor 1, Factor 2 is also precluded from administrative and judicial review.
2015 Factor 2 Calculation:
1- ((13.75% - 18%) / 18%) - 0.2% = 76.19%
Factor 2 is applied to Factor 1 (Uncompensated Care Pool) to determine the total uncompensated care amount to be distributed to qualifying DSHs:
As the uninsured rate falls due to private insurance and Medicaid expansion, the amount of UC reimbursement will continue to be reduced accordingly. Hospitals will receive less supplemental reimbursement via the DSH/UC program but should realize greater payments from a higher percentage of insured patient populations.
However, the amount of the pool that hospitals will share is a national calculation based on estimates for both Factor 1 and Factor 2 and does not necessarily reflect what is actually happening nationally, let alone at any one individual hospital. This is an issue that each hospital should be evaluating and through discussions with their elected officials ensuring that policymakers are made aware of “actual” implementation realities as compared to CMS’ and CBO’s expectations and estimates. Given that this is a $13+ billion program, the delta for hospitals between projected and actual could be quite significant and thus warrant honest, open dialogue with policymakers.
An in depth look at Factor 3 is next...