1. Medicaid Supplemental Payments
Larry E. Tisdale, V.P. of Finance
Idaho Hospital Association

2. Types of Supplemental Payments
Medicaid supplemental payments are classified into two simple categories:
Disproportionate Share Hospital (DSH) Payments
Medicaid DSH payments
Non-DSH Payments
Upper Payment Limit (UPL) payments

3. Federal Authorization
DSH Authorization
42 CFR § 447 Subpart E
UPL Authorization
42 CFR § – Inpatient, NF, ICF/MR Services
42 CFR § – Outpatient, Clinic Services

4. What is the Medicaid UPL
The federal government allows states to reimburse hospitals for uncompensated care provided to Medicaid participants in an amount equal to what Medicare would have paid. A UPL calculation is made for both inpatient and outpatient payments.
The UPL Gap is easily stated as:
What Medicare would have paid – Medicaid payments.

5. The UPL is NOT a Zero-Sum Gain
The amount of calculated UPL “gap” in one hospital’s calculation does not take away from another hospitals UPL payment

6. Keys to the UPL Calculation
Reasonable estimate of Medicare payment(s)
Cost reporting year(s)
Inflation index
Activity index
Payment(s) used

7. Idaho Medicaid State Plan on Estimated Medicare Payments
While the Medicaid state plan designates using estimated actual costs as the “reasonable” method for estimating Medicare payments, the calculation of the estimated Medicare payments is not specified in the state plan.

8. Reasonable estimate of Medicare payment(s)
The method for calculating what Medicare would have paid is not fixed in federal code or rule.
Several methods are commonly used:
Forecast for the current fiscal year
DRG estimate for payments
Estimated actual cost (retrospectively)*
*Currently used by Idaho Medicaid

9. Payment(s) used in the UPL Calculation
Two calculation methods have been used in Idaho to arrive at the Medicaid payments element of the UPL equation.
Actual payments for the calendar year.
Payments for cost reporting years indexed for inflation (adjusted for patient service activity).

10. Cost reporting year(s)
The cost information used in the UPL calculation comes from audited cost reports.
This year UPL calculation will use the most recently audited cost reports from 2008, 2009 and possibly 2010.

11. Index for Inflation
Because each hospital will used there own cost reports for estimating Medicare costs, they must all be indexed forward to the year for which the UPL is being calculated.
The UPL is about the providers not the State of Idaho.
This years UPL will be based on the calendar year 2010.

12. Index for Patient Service Activity
Because the number of patients seen and the number of hospital days will not be the same for the cost reporting years and the calculation year, the costs must be adjusted for differing level of patient activity.

13. How the UPL Payments Financed?
The cost of UPL payments are split between the federal government and state governments based on each state’s federal financial participation rate (also known as FMAP)
States may use:
State General fund appropriations
Inner-Government Transfers (IGTs)
Certified Public Expenditures (CPEs)
Provider Taxes/Assessments

14. Inner-Governmental Transfers
Used primarily for county and hospital district owned facilities.
The “payments” can directly mirror the State general funds necessary to fund the state’s share of UPL payments

15. Certified Public Expenditures (CPEs)
Counts expenditure of government entities as the State’s participation if the entities have taxing authority and can show that the expenditures have not already drawn down other federal matching dollars.
Used primarily for county and hospital district owned facilities.
The “payments” can directly mirror the State general funds necessary to fund the state’s share of UPL payments

16. Provider Taxes/Assessments
Currently CMS limits provider taxes to 5.5%.
Cannot directly mirror FMAP rates.
Must be broad based (at risk).
Voluntary contributions are prohibited.

17. How are Provider Assessment Rates Calculated
Total General Funds Required Divided by Net Patient Revenue from All Cost Reports

18. Are Provider Taxes Popular?
According to a study performed by The Kaiser Commission on Medicaid and the Uninsured:
In states will have provider taxes in place for hospitals.
In states will have some form of provider taxes in place.

19. Medicaid DSH Payments
Medicaid DSH payments were created by the federal government to make sure that states provided adequate payments to hospitals for providing care to uninsured, indigent and Medicaid patients (state are not required to have UPL programs).

20. Federal conditions for DSH Participation
At least 1% of a facilities total inpatient days must be attributable to Medicaid patients; and
If a hospital provides obstetrical services after Dec 21, 1987 the hospital must have at least two obstetricians with staff privileges who agree to serve Medicaid beneficiaries.

21. How is DSH information Gathered?
The unfunded care identified for the DSH payment calculation is reported annually on the “DSH Audit Survey”
With Medicaid Reimbursement at 100% of cost (101% for CAHs) and the UPL payments accounted for in the DSH calculation, Sections “D” and “E” of the DSH Survey are critical to your DSH allocation.

22. Sections “D” & “E”
Sections “D” and “E” account for unfunded care for Dual (Medicare and Medicaid) covered crossover claims, out of state Medicaid patients and the uninsured.

23. The DSH Calculation can be a Zero-Sum Gain Calculation
Because the allotment of federally available DSH funding is set each year as a fixed amount of money, any hospital that does not maximize its DSH calculation leaves money on the table to be allocated to other hospitals.

24. Medicaid DSH audits
For state fiscal year 2005 all states must complete audit of hospitals DSH payments and allowable expenses.
Use audit findings for rate year 2005 – 2010 to prospectively adjust DSH payments.
The States must use audit findings for rate year 2011 to determine over/underpayments.

25. How are the Payments Calculated
The total of all Medicaid DSH payments is based on a lump-sum distribution from the federal government for each state.
The distribution of DSH payments (federal plus State matching funds) is distributed based on Medicaid patient days after mandatory DSH payments* are allocated.
* Mandatory payments are made to providers whose Low-Income Utilization Rate (LIUR) is greater than 25% or exceed one standard deviation.

26. How are DSH Payments Financed?
The financing options for state to use for DSH payments are the same as those for UPL payments. In 2011 the State will used provider assessment of approximately $7.2 million to fund the State share of DSH payments

27. Are Provider Taxes Claimable Costs?
If provider taxes directly attributable to supplemental payments are less than the payment received, the difference is an includable cost on the cost report.
Provider taxes assessed to balance the State’s general fund balance are claimable.

28. Hospital Specific DSH “Gaps”
The amount of DSH gap is calculated for each hospital the qualifies for DSH funding. This is very much like the UPL gap, but not all of the gap will be funded for each hospital.

29. What are the Known Political Risks?
Medicaid will still need the $32 million per year in hospital provided budget savings in 2013.
Federal legislation may reduce or eliminate provider taxes/assessments.
Automatic provider cuts for Medicare payments are part of the $1.2 trillion in automatically triggered budget reductions.
Both Medicare and Medicaid DSH payments are schedule to be reduced by PPACA in 2014.

30. Questions?