CMS Issues Guidance for Medicare Contractors to Pay For Section 1115 Day

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On March 16, 2023, CMS issued Change Request 12669, which contains instructions for Medicare Administrative Contractors (MACs) to begin the process of retroactively reimbursing DSH hospitals for inpatient days attributable to individuals whose care is covered by uncompensated care pools or who receive premium assistance approved by CMS in a Section 1115 Medicaid waiver. This reimbursement is now required following CMS’s acquiescence in Bethesda Health v. Azar (D.C. Cir. 2020), which held that CMS “regards” such individuals as “Medicaid eligible” when it approves these waivers and provides matching federal payment. The guidance directs MACs to settle the cost years of the hospitals that were plaintiffs in Bethesda Health v. Azar on an accelerated timetable. King & Spalding represented the Florida Hospital Association and more than a dozen of its members in Bethesda Health.

The hospitals in Bethesda Health sought to claim the patient days covered by the Florida Low Income Pool (LIP), which is an uncompensated care (UCC) pool authorized by Florida’s Section 1115 waiver and funded with matching federal dollars. At the time the Bethesda Health plaintiffs brought their claims, the express purpose of the LIP was to cover the cost of care provided to uninsured and underinsured individuals, and hospitals received LIP payments to compensate them for this care. Despite receiving these benefits, CMS argued that inpatient days attributable to LIP individuals were not “regarded” as “Medicaid eligible” because they were not enrolled in a Medicaid health insurance plan. Therefore, according to CMS, their patient days could not be claimed for Medicare DSH. The D.C. Circuit disagreed, holding that both the Medicare statute and regulations require CMS to regard patients whose care is covered in whole or in part by a Section 1115 UCC payment pool as Medicaid-eligible. In addition to the hospitals in Bethesda Health, King & Spalding represents several other Florida hospitals and hospitals in Texas, Tennessee, California, Kansas, and New Mexico, each of which reimburses providers for care to the uninsured or charity care patients from an uncompensated care pool approved and funded by CMS.

Last year, King & Spalding negotiated a process with CMS, finalized in a Technical Direction Letter (TDL), that directed the MACs to accept original and amended cost reports of hospitals seeking to claim Section 1115 uncompensated care patient days for Medicare DSH and issue tentative settlements providing additional DSH reimbursement. All of those cost reports—as well as cost report appeals before the Provider Reimbursement Review Board—await final settlement because CMS had not yet instructed MACs on how to implement the Bethesda Health decision when reviewing cost reports or resolving appeals before the Board.

Change Request 12669 includes a transmittal which instructs MACs to begin the process to finalize retroactive payment for open cost reporting periods and appeals before the Board challenging CMS’s policy to exclude Section 1115 uncompensated care days struck down in Bethesda Health. The instructions are generalized. They require the MACs to review Section 1115 waivers to determine how to identify the uncompensated care population and their eligible inpatient days, accept a Section 1115 patient day log that includes such days and review documentation for a sample of patients to confirm patient “eligibility,” their length of stay and whether they were treated in an acute unit of the hospital.

What is missing from these instructions is detail about what waiver documentation identifies these individuals as “eligible” for coverage under the uncompensated care pool and what documentation CMS will accept to prove their eligibility. CMS does not typically make public its MAC audit protocols at this level of detail. As part of the process for negotiating last year’s TDL and resolving the claims of the Bethesda Health plaintiffs, CMS and its legal counsel sought King & Spalding’s assistance in answering these two questions. As a result, we have gained a unique insight into the documentation the MACs will require to verify a hospital’s section 1115 inpatient days. This task is challenging considering that these eligible individuals are typically uninsured or charity care patients.

The audits for the Bethesda plaintiffs “shall be completed first by their applicable MAC prior to addressing any remaining impacted providers.” Outside of the Bethesda Health plaintiffs, for hospitals that have “jurisdictionally valid pending Section 1115 Bethesda-like appeals” pending before the Provider Reimbursement Review Board, the MACs must audit and settle those years through the Administrative Resolution process by May of 2025. As for all other cost years, the MACs are to audit Section 1115 days during the desk audit.

Last month, we reported that CMS proposed to change the Medicare DSH regulation to specify that patients covered by Section 1115 UC pools are not regarded as Medicaid eligible. That regulation, if finalized, will only be applicable to discharges occurring on or after October 1, 2023, and Change Request 12669 will continue to be used for Section 1115 UC pool patient encounters occurring prior to that date.

A copy of Change Request 12669 is available here.

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