Southwest Consulting Associates Blog

2019 IPPS Proposed Rule: Cost Report Worksheet S-10 to determine Two-Thirds of Factor 3 for Uncompensated Care Payment

Posted by Jamie Pennington on Apr 25, 2018 3:59:40 PM

Find me on:

2019 IPPS proposed ruleThe 2019 IPPS Proposed Rule will be published in the Federal Register on May 7, 2018. If finalized, these changes will go into effect October 1, 2018. The pre-published version can be viewed HERE. Public comments will be accepted until 5 p.m. EDT on June 25, 2018.  Below is SCA’s "as brief as we could make it", yet comprehensive summary on the Medicare DSH/Uncompensated Care payment portion (pages 818-877) of the proposed rule as it will affect qualifying DSH hospitals.

 

Quick Review of the DSH Payment Under ACA

As a result of the ACA, the amount of total DSH reimbursement a provider may receive for discharges beginning in FY 2014, is now based upon two components:

  • Empirically Justified Medicare DSH Payment

  • Uncompensated Care (UC) Payment

The Empirically Justified Medicare DSH Payment is 25% of what Medicare DSH would have been under the pre-ACA formula.  More on that HERE!

 

The remaining amount, the UC payment, is a product of 3 factors (Factor 1 x Factor 2 x Factor 3):

Factor 1:  75% fixed pool of what DSH would have been as estimated by CMS for all hospitals combined under the pre-ACA formula

Factor 2:  Estimated % change in the national uninsured rate

Factor 3:  Provider’s % of uncompensated care relative to all hospitals eligible for DSH

Hospitals that are not eligible to receive the Empirically Justified Medicare DSH Payment, will not be eligible to receive the UC payment.

 

2019 Proposed Rule Highlights

  1. Updated estimates for Factors 1 and 2

  2. Worksheet S-10 data used for two-thirds of Factor 3 to calculate and distribute UC payments

  3. A scaling factor for ALL hospitals, annualized cost reports and CCR trim where applicable

  4. Worksheet S-10, Line 30 will still be used as the data metric for uncompensated care costs (Line 23 + Line 29)

  5. Increased scrutiny by MACs for aberrant data

  6. Patient detail is now required with cost report submissions to substantiate charity care and uninsured discounts for cost reporting periods beginning on or after 10/1/2018.

In this post, we will touch on each of the highlights above beginning with Factor 1.

 

Factor 1

Factor 1 establishes the gross uncompensated care pool. CMS estimates the difference between what would have been paid to qualifying hospitals under the historical DSH formula and the 25% empirically justified amount. The source of this estimate is the most recently available projections of Medicare DSH reimbursement as calculated by the CMS Office of the Actuary using the most recently filed cost reports and the most recent DSH information provided in the IPPS impact file. For 2019, the estimate generally begins with cost reporting periods beginning in FFY 2015 with some exceptions and modifications described in the proposed rule. The net result is Factor 1.

 

CMS Office of the Actuary estimates FY19 DSH at $16.295 billion. This is $742 million more than the FY18 final rule DSH estimate of $15.553 billion. After removing the empirically justified DSH amount (25%), the final Factor 1 as proposed is:

 

2019 Factor 1 ≈ $12.221 billion ($16.295 * 75%)


For reference, the final Factor 1 for FY 2018 as estimated by CMS was $11.665B.


Note regarding the increase:

The increase is due solely to the fact that the starting point is higher as CMS used FY 2015 cost report data in this proposed rule and used FY 2014 cost report data for the 2018 final rule estimates.  The higher starting point offset the downward adjustments in the trending factors used in 2019 versus the values used in 2018.

 

Factor 2

Factor 2 adjusts the Uncompensated Care Pool (Factor 1), established above, by the change in the national uninsured rate.


For FY 2014 through FY 2017, Factor 2 equaled 1 minus the percentage change in individuals under 65 years old that were uninsured. The change in the number of uninsured was between the payment year and 2013, which was the last year before the ACA became effective. The data source for this information up until FY 2018, was the Congressional Budget Office (CBO) reports. Beginning FY 2018, CMS finalized to change the source of the data that it used to derive the uninsured factor to the CMS Office of the Actuary report as part of the National Health Expenditure Accounts. This source is a complicated configuration of data sets and sources seen in the table HERE and is proposed to be used again to estimate the rate of uninsurance for FY 2019.


Also, starting in FY 2018 and proposed for FY 2019, Factor 2 will be calculated using all age groups rather than the under 65 age group used in 2017 and previous years. With the change in age group, the pre-ACA baseline (2013) of uninsured was reduced from 18% in the 2017 final rule to 14%.

 

Per the new source and data sets, the uninsured rate for 2018 is projected to be 9.1% (was 8.1% in FY18 final rule) and the projected uninsured rate for 2019 is 9.6%. After blending to convert the raw data from a calendar year basis to a federal year basis and then running it through the statutory formula, the resulting adjustment factor is .6751, thus resulting in a UC Pool value of $8.250 billion.


CY 2018 uninsured:  9.1%

CY 2019 uninsured:  9.6%

FY 2019 weighted uninsured:  (9.1% * .25) + (9.6% * .75) = 9.48%

 

FY 2013 uninsured:  14%

FY 2019 ACA reduction:  0.2%

 

1- ((9.48% - 14%) / 14%) - 0.2% = 67.51%

 

$12.221B * 67.51% = $8.250B distributed to 2,485 hospitals

projected to qualify for DSH in 2019

 

For more information on the Factor 2 formula and FY 2018 comparison, click HERE.

 

Factor 3

During FY 2018 rulemaking, CMS finalized incorporating Worksheet S-10 into the Factor 3 calculation. CMS concluded we had reached a tipping point with respect to the use of S-10 data... We could no longer conclude that alternative data are available that are a better proxy than the Worksheet S-10 data for the costs of subsection (d) hospitals for treating individuals who are uninsured.

 

CMS made mention of the multiple opportunities provided to hospitals to amend or file initial submissions of Worksheet S-10 if none had been previously filed:

For the FY 2019 proposed rule, CMS included updated HCRIS data through February 15, 2018 instead of the typical December HCRIS file.  An important item to note, approximately 50% of qualifying hospitals had data changes as a result of the additional opportunities to submit Worksheet S-10.

 

CMS also mentioned the issuance of:

  • Transmittal 10 which clarified and revised the instructions for Worksheet S-10

  • Transmittal 11 which clarified the definitions and instructions for uncompensated care, non-Medicare bad debt, non-reimbursed Medicare bad debt in addition to other modifications and additional clarifications.

For FY 2019, CMS is proposing to continue to use the average of three cost reports to calculate Factor 3 and to advance the time period of the data used in the FY 2018 final rule forward one year.  So, for FY 2019, CMS is proposing the following combination to calculate a provider’s average Factor 3:

  • 1st Factor 3:  FY 2013 cost report low-income days and FY 2016 SSI days

  • 2nd Factor 3:  FY 2014 Uncompensated care cost per Worksheet S-10  

  • 3rd Factor 3:  FY 2015 Uncompensated care cost per Worksheet S-10

Other items to note:

  • CMS expects to use the March 2018 HCRIS data for the final rule but may consider using data through May 2018, if necessary.

  • CMS will continue to “annualize” Medicaid and uncompensated care cost data if the hospital’s cost report does not equal 12 months of data, however,

    • CMS is proposing to discontinue the additional step of combining data across multiple cost reports if a hospital filed multiple reports beginning in the same fiscal year.  Instead, CMS proposes to use the data from the 12-month cost report or if none exists, use the one closest to 12-months and then annualize the data.

  • CMS will also continue to use a “scaling factor” to normalize data for all hospitals

  • The definition of uncompensated care established during FY 2018 rulemaking is still appropriate and Worksheet S-10, Line 30 will still be used as the data metric for uncompensated care costs (Line 23 + Line 29)

  • CMS will continue to implement a trim methodology for cost-to-charge ratios that fall outside three standard deviations from the national mean.  This currently affects 14 hospitals.

  • Factor 3 for IHS and Tribal hospitals, subsection (d) Puerto Rico hospitals and All-Inclusive rate providers will solely be based on low-income days from FY 2013. 14% of Medicaid days will be used as a proxy for SSI days for qualifying Puerto Rico hospitals.

Worksheet S-10 Scrutiny for Aberrant Data

CMS has instructed MAC to review instances where hospitals have a high ratio of UC costs to total operating costs, which they are currently reviewing.  In the event that the hospital cannot justify the ratio, data will be used from another fiscal year based on a predetermined methodology outlined in the proposed rule.  CMS has already included adjustments for those hospitals with high ratios in the FY 2019 proposed rule and calculations for the final rule will be contingent on the MAC findings.

 

MACs have also been instructed to review instances where there were large swings in resubmitted S-10 data.  MAC review protocols are considered confidential and will not be made public, however, CMS suggests it may be appropriate to review those hospitals with increases/decreases in the top 1%.  If swings cannot be justified by the hospital, data will be used from another fiscal year based on a predetermined methodology outlined in the proposed rule. CMS has already included adjustments for those hospitals with large swings in the FY 2019 proposed rule and calculations for the final rule will be contingent on the MAC findings.

 

Worksheet S-10 Patient Detail Requirement

CMS addresses charity care and uninsured discounts even further later in the proposed rule.  CMS is proposing to require hospitals to submit supporting documentation for the charity care and uninsured discounts reported on Worksheet S-10, in order to have an acceptable cost report submission.  The proposed requirement and reasoning can be found on pages 1460-1462 of the proposed rule and would be effective for cost reports beginning on or after October 1, 2018. The detailed listing should include patient name, dates of service, insurer (if applicable), and the amount of charity care and/or uninsured discounts provided to the patient. CMS states that a cost report will not be accepted without a detailed listing of charity care and/or uninsured discounts that corresponds to the amounts reported on the provider's Medicare cost report Worksheet S-10.

 

Other Notes

There was no future proposal made by CMS for Factor 3 in FY 2020, but if the FY 2019 methodology is finalized and rolled forward one year, FY 2020 would fully transition to Worksheet S-10 to determine a provider's Factor 3.  CMS also suggests the possibility that multiple years worth of S-10 data may not be necessary after examining FY 2016 data.

 

CMS also provided an impact analysis detailing the effects of the proposed changes on uncompensated care payments by various hospital characteristics.  More on this can be found starting on page 1759.

 

Curious about how your specific provider stacks up?  REQUEST AN IMPACT ANALYSIS FOR YOUR PROVIDER HERE.


Finally, public comments will be accepted until 5 p.m. EDT on June 25, 2018. Comments can be submitted to CMS at Section3133DSH@cms.hhs.gov.  We will continue to post more in-depth analysis on each Factor and cost report worksheet S-10 in the coming weeks.   As in past years, SCA will make available for download our 2019 IPPS proposed rule comment letter once submitted to CMS.  Be on the lookout…

 

Don't miss the subsequent blog posts in our FY 2019 IPPS Proposed Rule series and SUBSCRIBE TO OUR BLOG BELOW!

Southwest Consulting Associates Worksheet S-10 blog

 

Know someone who could benefit from this blog?  Share the love!

 

Email blog to a colleague

 

Topics: Medicare DSH Reimbursement, uncompensated care, worksheet s-10, proposed rule, Compliance, DSH Reimbursement, Industry Updates, S-10, healthcare finance, regulations

About This Blog

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

Subscribe to Email Updates

Follow Us

Recent Posts