Getting Compensated for Uncompensated Care

This article, by Barbara Straub Williams, principal at the law firm of Powers, Pyles, Sutter & Verville, P.C. in Washington, DC, is adapted from the June 2012 issue of Dennis Barry’s Reimbursement Advisor.

Worksheet S-10 of the Medicare hospital cost report (found here at Ch. 36) calculates a hospital’s uncompensated costs and, until recently, had no impact on a hospital’s reimbursement. Now, however, the Centers for Medicare and Medicaid Services (CMS) uses charity care data from the worksheet in the calculation of the Medicare electronic health record (EHR) incentive payment for most hospitals, and states are doing the same to calculate the Medicaid EHR incentive payment.

In addition, CMS will likely use Worksheet S-10 to determine the amount that a hospital will be paid from the Medicare uncompensated care pool, which will largely replace Medicare disproportionate share hospital (DSH) payments beginning October 1, 2013.

Consequently, hospital reimbursement personnel should pay careful attention to Worksheet S-10 to ensure that their hospitals receive all of the reimbursement to which they are entitled.

Background on Worksheet S-10

CMS completely revised Worksheet S-10 in the new Medicare cost reporting form for acute care hospitals (Form 2552-10), which was effective for cost years beginning on or after May 1, 2010. All acute care hospitals, including critical access hospitals, are required to complete Worksheet S-10.

Worksheet S-10 calculates a hospital’s net uncompensated care costs, i.e., payments less costs (calculated by using the total cost-to-charge ratio (CCR) from Worksheet C) for the following:

1. Services to Medicaid patients;

2. Services to SCHIP patients;

3. Services to patients covered by a state or local government indigent care program; and

4. Services to patients who are given a discount under a hospital’s charity care policy.

In addition, Worksheet S-10 includes costs (again, using the CCR from Worksheet C) for non-Medicare and nonreimbursable Medicare bad debt.

Notably, Worksheet S-10 includes all uncompensated care for hospital inpatient and outpatient services, but does not include any uncompensated care for services furnished by physicians or other professionals, even if they are employed by the hospital.

EHR Incentive Payments

For hospitals with 1,150 or more Medicare discharges, the amount of a hospital’s charity care is one factor in determining its electronic health record (EHR) incentive payment. The more charity care a hospital provides, the higher its EHR payment. Specifically, the Medicare EHR incentive payment is equal to $2 million plus the product of the following: Medicare discharge amount; Medicare share; Transition Percentage [42 U.S.C. §1395ww(n)(2)(A)-(e)].

The Medicare discharge amount is $0 for hospitals with fewer than 1,150 discharges and $200 for the 1,150th discharge through the 23,000th discharge. The transition percentage is 100 percent in the first year of the hospital’s EHR incentive payment and decreases by 25 percent each subsequent year.

Hospitals that qualify for the EHR incentive payment in 2014 and after receive lower transition percentages. The Medicare share is a fraction defined as:

[Inpatient Medicare Part A + Part C Days] divided by the product of Total Inpatient Days and [Total Charges minus Charges for Charity Care divided by Total Charges]

As shown in the formula, charity care charges are used to calculate the denominator of the Medicare share fraction. The final incentive payment is based on the hospital’s cost report that begins during the payment year [42 C.F.R. §495.104(c)(2)].

A hospital’s Medicaid EHR incentive payment is calculated using the same formula as the Medicare payment, except Medicaid data is substituted for Medicare data. CMS has instructed dates to use Worksheet S-10 “or another auditable data source” to calculate charity charges for the Medicaid EHR payment [75 Fed. Reg. 44,498]. 

It seems likely that most states will use Worksheet S-10 to determine charity care for Medicaid EHR payments. For example, the Wisconsin and Colorado Medicaid programs use Form S-10 to calculate their Medicaid EHR incentive payments. Accordingly, Worksheet S-10 likely will have a financial impact on hospitals that qualify for a Medicaid EHR incentive payment.

Medicare Uncompensated Care Pool

Beginning October 1, 2013, hospitals’ Medicare disproportionate share hospital (DSH) payments will be 25 percent of the amount that they would have otherwise received [42 U.S.C. §1395ww(r)(1)]. Most of the remaining 75 percent of DSH funds that would have been paid to hospitals will become an uncompensated care pool, which will be distributed to DSH hospitals based on the ratio of the total amount of uncompensated care provided by the hospital to the total amount of uncompensated care provided by all DSH hospitals [42 U.S.C. §1395ww(r)(2)(C)].

Stated differently, the more uncompensated care that a hospital provides as compared to other DSH hospitals, the higher its payment from the uncompensated care pool will be.

The Medicare statute states that the amount of a hospital’s uncompensated care will be based on “appropriate data” [42 U.S.C. §1395ww(r)(2)(C)(i)]. CMS has not issued a rule to prescribe what data it will use. It seems very likely, however, that CMS will use the data on Worksheet S-10 to calculate the amount of a hospital’s payment from the uncompensated care pool.

As a consequence of these changes, hospitals that routinely scoured for additional Medicaid eligible inpatient days to include in the DSH calculation will find that those days have only 25 percent of the reimbursement impact that they formerly had.

The effort that hospitals have devoted to finding additional Medicaid eligible inpatient days should be redirected, at least partially, to ensuring that all uncompensated care data is captured on Worksheet S-10.