NAVEOS®’ Analysis of the FY 2016 Final Rule Reveals Medicare DSH is Down But Not Out

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Research by NAVEOS® (a leading health care reimbursement and analytics company headquartered in Northern Virginia) into the Centers for Medicare & Medicaid Services (CMS) FY 2016 Final Rule released on Friday, July 31, 2015 shows that Medicare DSH funding although lower is still the largest DRG add-on component.

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DSH Hospitals need to take a multi-level approach to ensuring optimization of this critical revenue stream both prospectively and retrospectively as the mechanism to determine Medicare DSH payments continues to evolve. ~ Robert Gricius, NAVEOS CEO

On July 31, 2015, CMS released the FY 2016 IPPS Final Rule. NAVEOS® prepared an overview of the Medicare DSH related key information contained in this 2000+ page document . The information related to the Medicare DSH adjustment is found on pages 770 – 844.

The national Uncompensated Care Pool for FFY 2016 is $6.4B. This is a drop of 16.2% or over $1.2B from the amount in the FFY 2015 Uncompensated Care Pool.

The drop is caused primarily by a large decrease in the estimated number of the uninsured population under age 65 between FFY 2015 and 2016 (Factor 2). The FFY 2015 estimate from the Congressional Budget Office (CBO) for the percentage of the under 65 uninsured population was 13%. The FFY 2016 estimate from the CBO for the percentage of the under 65 uninsured population was 11.5%.

It is likely the large year over year Uncompensated Care Payment (UCP) percentage reductions that have been witnessed will decline substantially from the first 3 years of the Affordable Care Act. The first two years under Affordable Care Act (ACA) have created the largest growth in the newly insured population. Absent rapid adoption of Medicaid expansion in the non-expansion states, we should not encounter this level of reduction in the uninsured population moving forward.

Not only is Factor 2 driving down the UCP payment, so is CMS’s calculation of Factor 1. There were many comments submitted presenting a scathing indictment of the Factor 1 calculations in the comments of the Proposed Rule.

CMS is considering a timeline for utilizing Worksheet S-10 and will address this in the FY 2017 Proposed Rule. CMS appreciated the many suggestions, including a transition period; however they gave no indication if they would or would not consider a transition but alluded to this on page 823.

FY 2016: CMS will use the latest cost report information from the 2012 cost reports in the March 2015 HCRIS database. Therefore, they are implementing a 4 year look-back rather than their traditional 3 year lookback. As a result, the final UCP funding will be based on Pre-ACA metrics.

CMS stated that if they continue to use the Low Income Insured Day Proxy Method in 2017, they will use the latest available information based on the 2013 cost reports: For the 2017 Proposed Rule, they will use the December 2015 HCRIS update and for the FY 2017 Final Rule, they will use the 2013 cost reports represented in the March 2016 HCRIS database.

CMS will renew focus on the use Worksheet S-10 for UCP distribution:

CMS has renewed their focus on Worksheet S-10(WS10) as the mechanism for distributing the UCP funds. Hospitals should start preparing now for that eventuality, not when it happens. Given the CMS propensity to look-back at least three to four years, and the possibility that CMS may have a multi-year time frame for implementing the S-10 reporting system, all upcoming WS10 may be used for actual UCP distribution. There is no certainty at this time when that will happen, but there is a high probability that it will occur within the next few years.

CMS will, in all probability, be utilizing at least some component of the Low Income Insured Day methodology to distribute the Uncompensated Care Pool in FFY 2017, therefore it is incumbent upon all DSH hospitals to update their 2013 cost reports in December of 2015 so that the highest and most accurate number of Medicaid days can be found in the March 2016 HCRIS data base which will be used in the CMS calculation for the distribution of the FFY 17 Uncompensated Care Pool.

NAVEOS® suggests DSH Hospitals take the following action items to ensure optimization of their critical revenue streams:

1. Maximize both fractions of the empirically justified amount, the only component over which hospitals have total control. In spite of the CMS actuarial calculation that shows this amount essentially flat over the first three years of the ACA the reality is that, at least for expansion States, it is increasing at a significant rate.

2. Start preparations now for retrospective amendment of prior WS10 submissions and prospective development of this mandatory and auditable form by utilizing a claim and sub-claim level, bottom up approach that will enable optimization and update of these metrics.

3. Prospectively update the 2013 allowable Title XIX days no later than December of this year to ensure that they receive their fair share of the FFY 2017 UCP funds.

4. Protest the calculation of Factor 1 to preserve hospital’s rights to appeal this calculation when the inevitable group appeals begin to challenge all the unsupportable assumptions CMS is using to lower this value that are egregious enough to overcome the regulatory prohibition against doing so.

NAVEOS® has all of the latest CMS information and detailed analyses of how the FFY 2016 IPPS Final Rule will impact hospitals’ Medicare DSH payments and can provide side by side comparison of the proxy method versus Worksheet S-10. . Questions can be directed to NAVEOS® at or (888) 550-2708.

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Stephanie Piquette
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