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New Uncompensated Care Calculation

News  |  By HealthLeaders Media News  
   February 01, 2018

A new CMS calculation for uncompensated care presents an opportunity and a compliance risk for DSH hospitals.

This article first appeared in the January/February 2018 issue of HealthLeaders magazine.

CMS allocated $6.8 billion for uncompensated care to hospitals who qualify under the Disproportionate Share Hospital (DSH) program for this fiscal year, and it changed two factors affecting how these funds are calculated, including how funds are allocated to individual hospitals, potentially creating both revenue opportunity and compliance risk for DSH hospitals.

The Affordable Care Act (ACA) changed how funds are distributed under the long-standing DSH program, providing for 75% of the funds for the overall program to be allocated for the uncompensated care hospitals provide to uninsured patients.

This amount is referred to as Factor 1 and was calculated to be roughly $11.7 billion in FY2018, up from $10.8 billion in FY2017.

The ACA provides for CMS to reduce the funds available under this program each year based on its estimate of the change in the number of uninsured patients, referred to as Factor 2.

CMS changed the data source used to calculate the "rate of uninsurance," resulting in a reduction in Factor 2 from 10% in FY2017 to 8.1% in FY2018.

Factor 3 is a hospital-specific factor representing its share of the total uncompensated care provided. This factor is used to calculate a per claim, flat dollar add-on amount for each inpatient claim.

For many DSH hospitals, this add-on amount far exceeds the impact of quality programs for readmissions, value-based purchasing, and hospital-acquired conditions combined.

CMS is changing how Factor 3 is calculated. Prior to this year, the calculation used cost report census data on low-income insured patients, including Medicaid patients, as a proxy for uncompensated care. In states that did not expand Medicaid, this proxy potentially underrepresented hospitals' uncompensated care.

Worksheet S-10

CMS is phasing in the use of cost report Worksheet S-10 data, including charity care and unreimbursed bad debt.


CMS Phases In Use Of Cost Report Worksheet S-10 Data

1. In FY18, one-third of Factor 3 will be based on this data, while two-thirds will continue to be based on census data.

2. In FY19, two-thirds of the factor will be based on Worksheet S-10 data and, by FY20, use of this data will be fully implemented.

This year, one-third of Factor 3 will be based on this data, while two-thirds will continue to be based on census data. In FY2019, two-thirds of the factor will be based on Worksheet S-10 data, and by FY2020, use of this data will be fully implemented.

Hospitals should review new guidance from CMS and their own policies for charity care determinations, uninsured patient discounts, and bad debt collections to ensure all amounts are captured, while also remaining in compliance.

To ensure proper accounting for charity care and bad debt, training is important for finance staff involved with submission of the cost report as well as business office staff handling charity care write-offs.

Additionally, hospitals may be able to identify care that is currently being written off without a determination of financial need, particularly non-covered custodial care. Implementing proper notice procedures will transfer responsibility for the non-covered care to the patient, allowing hospitals to identify patients eligible for charity care for inclusion in future uncompensated care payments.

Under the new methodology for calculation of Factor 3, hospitals have an opportunity to capture a larger portion of uncompensated care funds, but they should proceed with care to ensure compliance in reporting all amounts on Worksheet S-10.

Kimberly A. H. Baker, JD, CPC, is the director of Medicare and compliance for HCPro, an H3.Group brand, and contributing writer for HealthLeaders Media.

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