By John R. Hellow DSH IMPROVEMENT? ACA § 3133

Hooper, Lundy & Bookman, Inc.© Summary of ACA § 3133 Purpose - Reduce DSH payments and repurpose residual to reflect relative hospital uncompensated care. Commencing October 1, 2013, traditional DSH paid at 25%, and remainder subject to Three Factors:  Factor One – 75% of estimated DSH payments set aside in pool,  Factor Two – Reduce pool by improvement in insured rates compared to 2010  Factor Three – Distribute pool based on proportion of an individual hospital’s cost of uncompensated care to all hospitals’ cost of uncompensated care Statute appears as new 42 U.S.C. § 1395ww(r)

Hooper, Lundy & Bookman, Inc.© FACTOR ONE – ESTIMATE DSH The aggregate amount of DSH payments that would be made to all hospitals, minus The amount paid on account of subsection 1395ww(r)(1), 25% of empirically justified DSH payments per MedPAC’s March 2007 Report to Congress at p. 77, equals An amount to be disbursed to DSH hospitals after adjustment in Factor Two and allocation in Factor Three.

Hooper, Lundy & Bookman, Inc.© FACTOR TWO – REDUCTION OF POOL TO ACCOUNT FOR GROWTH OF INSURED POPULATION For FFYs 2014 – 17, the pool of funds is multiplied by 1 minus  The percentage change in the uninsured under age 65, between 2013 (as determined by Secretary based on March 2010 estimates from OMB), and  The current year uninsured rate (also from OMB ?)  Minus.1 percent for 2014 and.2 percent for

Hooper, Lundy & Bookman, Inc.© FACTOR TWO Cont’d 2018 and After the pool of funds is multiplied by 1 minus  The percentage change in the uninsured between 2013 (as determined by Secretary and certified by the actuary) and  The current year uninsured rate (as determined above)  Minus.2 percent for 2018 and thereafter.

Hooper, Lundy & Bookman, Inc.© FACTOR TWO Cont’d Issues With the Calculation   How locked is CMS to OMB’s estimate for 2013?  Does the statute require the use of OMB data for the current periods?  CBO estimates that coverage expansion in 2014 and 2015 will lag prior estimates by 25%.  2018 and thereafter  Estimates now include all age groups including 65+  Do not rely on OMB data  What data sources will CMS use to capture this information?  Need to insure undocumented aliens are covered in the data.

Hooper, Lundy & Bookman, Inc.© FACTOR THREE – DISTRUBUTING UNCOMPENSATED CARE FUNDS TO PROVIDERS Distribution of the fund each year is made by establishing a quotient for each DSH hospital that equals  An estimate of the amount of uncompensated care for a period selected by the Secretary for each hospital and  The aggregate uncompensated care for all DSH hospitals for the period as above, and  Secretary may use alternate data this is a better proxy for the cost of treating the uninsured.

Hooper, Lundy & Bookman, Inc.© FACTOR THREE, Cont’d CMS January 8, 2013 National Call  Solicit Provider Input on Factors Two and Three  Strong Suggestion W/S S-10 data will be used  First new W/S S-10s used in FY 2011 and have not been audited per 12/31/2012 HCRIS Data  Many errors obvious in filed S-10 data that strongly suggests data is unreliable as a basis to determine relative share of uncompensated costs  Many hospitals did not report S-10 data at all, about 5%  14% had no bad debt data, but 90% of that group reported Medicare bad debt data  Some had a CCR of 1, many had CCRs above.6, a few had more gross charges on S-10 than on C.

Hooper, Lundy & Bookman, Inc.© FACTOR THREE, Cont’d  Unlikely S-10 data will be audited within 2 years of a year subject to the adjustment  CMS is unlikely to allow appeals or audits to impact payment once it has occurred – each change to a single hospitals impacts all hospitals payments.  Will CMS use lagging data, like wage index for this purpose, e.g., audited FFY 2011 W/S S-10 for FFY 2014 payments? Or will it rely on unaudited S-10 data?

Hooper, Lundy & Bookman, Inc.© FACTOR THREE, Cont’d Problems with W/S S-10  Definitional problems  Uninsured vs. Charity – Non means tested uninsured discounts likely not included in charity  Charity must be determined during the cost reporting period  Medicaid and other indigent program non-covered charges – must be addressed in charity policy or excluded  Non-Medicaid gov’t indigent care program patients likely should be excluded, but unclear.  Bad debt timing - written off or expected to be written off on balances owed by patients delivered during the cost reporting period. Accrual based account for bad debt should govern.

Hooper, Lundy & Bookman, Inc.© FACTOR THREE, Cont’d  Converting Charges to Costs  Problem particularly acute with bad debt  Hospitals may be grossing up charges to address copayment shortfalls – should a hospital be allowed to claim a cost for a copayment that exceeds the copayment.

Hooper, Lundy & Bookman, Inc.© Status of DSH Litigation Allina Health Sys. v. Sebelius (D.D.C. 11/15/12)  The Allina decision invalidated the CMS regulation adding Medicare Advantage days to the Medicare Fraction of the DSH computation.  Allina may yield additional DSH reimbursement, as well as cost savings on outpatient drugs through 340B Program eligibility when those Medicare Advantage days are removed from the DSH calculation.  Implication from Allina is that Part C dual-eligibles should be included in the Medicaid fraction.  Hospitals must act to preserve their rights to additional DSH reimbursement and with respect to 340B eligibility as CMS appeals the Allina decision.

Hooper, Lundy & Bookman, Inc.© Status of DSH Litigation, Cont’d Sebelius v. Auburn Regional Medical Center, (S. Ct. 1/22/13)  Supreme Court decides 9-0 no equitable tolling beyond 3 year good cause for late appeal regulation for government fraud in DSH/SSI cases.  Recognizes federal courts can review PRRB refusal to grant good cause for late appeals.  Sotomayor concurring opinion suggests good cause must include government misfeasance which leads to appeal delay.

Hooper, Lundy & Bookman, Inc.© Here Come the NPRs! After a freeze on the issuance of NPRs for DSH hospitals since 2006, even after the Allina decision, CMS has instructed MACs to issue NPRs with Part C days in the Medicare Fraction. These new NPRs are accompanied by a reopening notice on DSH.