National Provider Call on FY 2014 Medicare DSH Changes

by King & Spalding

On January 8, 2013, CMS hosted a National Provider Call to discuss the changes to Medicare disproportionate share hospital (DSH) payments under section 3133 of the Affordable Care Act.  Beginning in FY 2014, Medicare DSH payments will be cut to 25% of the amount expected to have been paid under the preexisting methodology.  The remaining 75% will be reduced by a factor based on the percent change since 2013 in the under-65 uninsured population.  What money remains will form the available “pool” for an additional payment to be redistributed according to each hospital’s proportion of the estimated, aggregate amount of uncompensated care.  Thus, the two main unknowns driving the reduction and redistribution of Medicare DSH payments are how CMS will measure (1) the change in the uninsured population; and (2) each hospital’s share of uncompensated care.  During the call, a number of issues were raised by listeners with respect to each of these factors.  Providers will have to wait for the FY 2014 Hospital IPPS Proposed Rule for answers.  Stakeholders are invited to submit formal comments on the implementation of section 3133 via email to by January 15th for consideration in the Proposed Rule.

The presentation was made jointly by Dobson DeVanzo & Associates, LLC and KNG Health Consulting, LLC, two consultants commissioned by CMS to provide technical assistance as CMS implements the revised Medicare DSH policy.  The consultants’ scope of work includes analyzing definitions and potential data sources for measuring the change in the uninsured population and levels of uncompensated care.

Change in the Uninsured

This part of the presentation focused on evaluating and comparing the available measurement tools—5 different national surveys—which CMS can use to measure the size of the uninsured population in FYs 2018 and beyond.  For 2013 through 2017, CMS is required to use CBO estimates to measure the non-elderly uninsured population. 

For 2013, CMS is statutorily required to use CBO’s March 20, 2010 estimate of the uninsured population.  For 2014 through 2017, the statute also requires CMS to use a CBO estimate, but there is a lack of clarity regarding which CBO estimate(s) CMS must use.  The statute arguably specifies that CMS must use this same March 20, 2010 estimate to determine the size of the uninsured population in 2014 through 2017.  However, due to decisions by many states, in the wake of the Supreme Court’s ruling, to opt out of Medicaid expansion under the Affordable Care Act, there are real reasons to doubt the continued accuracy of CBO’s original estimates.  During the call, CMS declined to clarify whether CMS will use the 2010 CBO estimate or more recent CBO estimates to measure the change in the size of the under-65 uninsured population in 2014 through 2017.  An answer is expected in the FY 2014 Hospital IPPS Proposed Rule.

Level of Uncompensated Care

The presentation next considered possible definitions of “uncompensated care” and available data sources to measure each hospital’s proportion of aggregate uncompensated care for purposes of divvying up what remains of the 75% “pool” after it is reduced according to the change in the uninsured population.  As a threshold matter, the statute arguably suggests that these “additional payments” are to be distributed among all subsection (d) hospitals that furnish uncompensated care, rather than being apportioned among DSH hospitals only.  CMS repeatedly declined to take a position on this issue, and indicated that it will address this point in the FY 2014 Proposed Rule.  Based upon the author’s own interpretation of CMS officials’ responses to repeated questions from listeners, however, it certainly seems possible that CMS will propose that the additional payments not be limited to DSH hospitals.

The consultants’ presentation concluded, based on literature review and stakeholder interviews, that the most common definition of “uncompensated care” includes charity care (defined according to hospitals’ internal charity care policies) plus bad debt.  Many stakeholders take the position, however, that governmental and/or commercial payer payment shortfalls should also be included in CMS’s measurement of providers’ uncompensated care levels.  Such shortfalls are included in certain states’ Medicaid definitions of “uncompensated care,” and are incorporated into ratings by Standard & Poor and PricewaterhouseCoopers.

After examining a number of potential data sources, including, e.g., IRS Form 990 data and Medicaid DSH audit data, the consultants concluded that Worksheet S-10 of the new Medicare cost report (CMS-2552-10) is the “only publicly available data source that contains the required variables to capture uncompensated care” (described as charity care plus bad debt).  Certain listeners questioned the general availability of S-10 data.  According to the presentation, only 50% of providers reported S-10 data for FY 2010, increasing to 75% in FY 2011.  S-10 reporting levels for FY 2012 are not yet known. 

“Uncompensated care” measurement and definitional issues identified for further consideration by CMS include:  (1) inclusion of all uncompensated and unreimbursed costs for Medicaid, SCHIP, and state and local indigent care programs in the definition of “uncompensated care”; (2) inclusion of charity care write-offs for services provided outside the reporting period; and (3) inclusion of GME costs in the calculation of providers’ cost-to-charge ratios used to determine charity care and bad debt costs.  Again, CMS is expected to address these issues in the FY 2014 Proposed Rule.

Payment Mechanics

Listeners asked CMS how the DSH payment changes would be effectuated and whether the changes would be reflected in the PPS Pricer, the data base used by contractors to determine the price upon which to base payment for a particular claim.  The Pricer includes provider-specific payment data including the DSH percentage used in the current DSH calculation.  Providers have requested confirmation from CMS that the “additional payment” under the new DSH methodology—i.e., each provider’s share of what remains of the 75% “pool” after it is reduced according to the change in the uninsured population—will also be reflected in the Pricer.  This would help ensure that Medicare Advantage plans contracted to pay the “Medicare rate” will pay an appropriate amount going forward.  CMS responded to these comments by saying that it would address payment mechanics in the Proposed Rule.

A copy of the presentation is available by clicking here.  A call transcript and audio recording should also be made available on the same website in the coming weeks.

Reporter, Susan Banks, Washington, D.C., +1 202 626 2953,

Written by:

King & Spalding

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