Major DSH Changes Under PPACA

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Affordable Care Act Changes to Medicare DSH: Now That CMS’s Proposal Is Here,

What Does it Say?

Dennis Barry Mark Polston Gregory Etzel

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Major DSH Changes Under PPACA

• Section 3133 of the Patient Protection and Affordable Care Act (PPACA), as amended by § 10316 and § 1104 of the Health Care and Education Reconciliation Act splits the Medicare DSH payment intotwo components:

― “Empirically justified Medicare DSH payment” – 25% of

historical amount

― “Uncompensated care payment”

• Designed as part of a “give and take” for hospitals

― Reduced DSH funding in exchange for the increased numbers of

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Hospitals Affected

• PPACA changes affects all “subsection (d)” hospitals

― Includes Puerto Rico subsection (d) hospitals, and hospitals

participating in bundled payments initiative

― Excludes Maryland hospitals operating under section 1814(b)

waiver

― Special rules proposed for sole community hospitals

― uncompensated care payments would not be used to determine

whether SCH is paid based on federal rate or hospital specific amount

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“Empirically Justified Medicare DSH

Payment”

• This represents the portion of DSH that qualified hospitals have traditionally received

• Reduces the DSH amount calculated to 25% of the amount that “would otherwise be made” under the statute

• Calculation methodology would be the same

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“Empirically Justified Medicare DSH

Payment”

• Intermediaries will adjust interim payments to 25%

of DSH that would otherwise be paid

• Cost report changes to reflect the appropriate DSH

amount at settlement

• No operational changes for these payments

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“Empirically Justified Medicare DSH

Payment”

• Statutory and regulatory issues relating to the DSH

payment (e.g., Part C Days, Dual Eligible Days) remain the same

― Ability to seek review of CMS policies remains intact

― Potential “echo effect” on uncompensated care payment

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“Uncompensated Care Payments”

― (1) Estimate of the 75% of DSH that otherwise would have been paid

― (2) The estimate of the reduction in uninsured individuals under 65 compared to FY2013

― (3) Each hospital’s estimate of uncompensated care costs relative to the sum of all hospitals’ estimated uncompensated care costs

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Uncompensated Care Payments

• Qualification

― Limited only to hospitals that qualify for “empirically justified

Medicare DSH Payments”

― Must be a Medicare DSH Hospital to receive the payments ― Interim eligibility determinations based on DSH estimates

―CMS estimates 2,349 hospitals will be eligible in FY 2014 ―list will be updated in Final Rule

―data source: Dec. 2012 update of the Provider Specific File ― Cost report reconciliation of eligibility

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FACTOR 1

• Section 1886(r)(2)(A): ― The difference between

― (i) the aggregate amount of payments that would be made to

subsection (d) hospitals under subsection (d)(5)(F) if

subsection (r) did not apply for such fiscal year (as estimated by the Secretary)

―i.e., the total amount that would have been paid out in DSH

payments but for PPACA and

― (ii) the aggregate amount of payments that are made to

hospitals under paragraph (1) of subsection (r) for such fiscal year (as so estimated)

―i.e., the 25% of DSH that is still paid

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FACTOR 1

• Both amounts used to calculate Factor 1 are estimates of DSH payments – NOT actual payments

― Estimates made prior to each year for which the provision applies

― No reconciliation

• Based on the most recently available projections for FY2014 and each subsequent year as calculated by the Office of the Actuary

― These estimates are based on the most recently filed cost reports with Medicare DSH payment information ― Potential for “baked-in” policy errors

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FACTOR 1

• The Numbers for FY2014

― Office of the Actuary estimate for FY2014 -- $12.338 billion

― This is total estimated DSH payment without application of

PPACA changes

― 25% of aggregate DSH = $3.084 billion ― FY2014 Factor 1 = $9.2535 billion

• No update to this amount based on actual DSH payment experience for FY2014

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FACTOR 2

• Section 1886(r)(2)(B)(i)

― For FY2014-2017, a factor equal to 1 minus the percentage change in the percent of individuals under the age of 65 who are uninsured, as determined by comparing

― (1) the percent of individuals uninsured in 2013

And

― (2) the percent of individuals uninsured in the most recent

period for which data is available

• This amount is reduced by 0.1 percentage points for FY2014 and 0.2 percentage points for FY2015-2017

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Factor 2

• Estimate of 2013 uninsured

― “Based on the most recent estimates available from the Director of the CBO before a vote in either House on the Health Care and Education Reconciliation Act of 2010…”

― CMS identified a March 20, 2010 CBO letter

― http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/113xx/

doc11379/amendreconprop.pdf

― Two estimates:

―Insured share of the nonelderly population including all

residents (82 percent) – Estimate proposed for use by CMS

―Insured share of the nonelderly population excluding

unauthorized immigrants (83 percent)

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Factor 2

• Comparison estimate of uninsured for “most recent

period”

― CMS proposing to use CBO estimates for this amount

― Consistent data source

― CBO’s February 5, 2013 Budget and Economic

Outlook

― Using the same “insured share of the nonelderly population including all residents” for FY2014 (84 percent)

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Factor 2

• FY2014 Factor 2—The Numbers:

― Percent of individuals without insurance for FY2013 – 18 % (i.e., the inverse of the 82 % insured statistic from CBO)

― Percent of individuals without insurance for FY2014 – 16% ― .001 reduction ― _{Factor 2 = 0.888} ― 1 – │[(0.16- 0.18)/0.18] │= 0.889 ― 0.889 – 0.001 = 0.888 15

Factor 3

― A factor equal to the percent, for each subsection (d) hospital, that represents the quotient of

― (i) the amount of uncompensated care for such hospital for a period selected by the Secretary (as estimated by the Secretary, based on appropriate data…

and

― (ii) the aggregate amount of uncompensated care for all section (d) hospitals that receive a payment under this subsection

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Factor 3

• Estimating the “amount of uncompensated care”

― Key issue

― Multiple proposals considered

― Worksheet S-10 may be the data collection tool of the future

― Relative newness raised concerns regarding

consistency and completeness of hospital reporting for current uncompensated care estimates

― Proxy method proposed for FY2014 instead

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Factor 3: Future Reliance on

Worksheet S-10?

• CMS considered, but did not propose:

― to define “uncompensated care” as

―cost of charity care

― the cost of care for patients that meet hospitals’ individual criteria net

any partial payment received from the patient

―bad debt

― non-Medicare (patient financially able but unwilling to pay) ― non-reimbursed Medicare bad debt

―but not Medicaid shortfall

― to use line 23 of S-10 to identify charity costs; and ― to use line 29 of S-10 to identify cost of bad debt

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Uncompensated Care Proxy

• Use of a proxy for FY2014

― “Data on utilization for insured low income patients can be a reasonable proxy for the treatment costs of uninsured patients.”

― Low income patient utilization data currently available through the SSI Ratio and Medicaid Fraction of the “empirically justified DSH payment”

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Uncompensated Care Proxy

• FY2014 Proxy:

― Inpatient days of Medicaid patients plus

― Inpatient days of Medicare-SSI patients

• A combination of the numerators of the current

DSH fraction

• Utilization used as a substitute for input costs with

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Uncompensated Care Proxy

• Estimated based on each hospital’s (and aggregate

hospitals’) most recently available data ― For FY2014:

― FY2010/2011 cost reports for Medicaid days ― FY2011 SSI ratios for Medicare-SSI days

• No reconciliation to actual for Factor 3

determination proposed

― CMS has invited comments as to whether to “include Factor 3 within the reconciliation process”

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Limitations on Review

• Section 1886(r)(3)

― “There shall be no administrative or judicial review under section 1869, section 1878, or otherwise of the following:

― (A) Any estimate of the Secretary for purposes of determining the factors described in paragraph (2) [i.e., Factors 1-3].

― (B) Any period selected by the Secretary for such purposes.”

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Limitations on Review

• Enhanced importance of the rulemaking comment

period

• Concerns based on the litigious history of the DSH

adjustment

― CMS policy changes over the years have created significant impact on DSH payment amounts

― e.g., Definition of what constitutes a patient who is “eligible for Medicaid” or “entitled to Part A”

― Historically corrected through litigation

― No “check” on the agency’s power to establish nearly ¾ of the current DSH payment

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Other Issues Raised by PPACA

Implementation

• Future reliance on Worksheet S-10 Data

― Special attention to issues associated with reporting

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S-10 Reporting Issues

• “for care delivered during this cost reporting period” • “for the entire facility”--see lines 26 & 27 which refers to

“entire hospital complex”

• coinsurance and deductibles are included on line 20 and then reduced by cost to charge ratio

• “enter payments received or expected” with respect to amounts on line 20

• bad debts for services furnished during period

MA Plans--Treatment of

Uncompensated Care Payments

• Payment is based on contract language--CMS will

maintain neutrality on whether the uncompensated care payment is part of DSH

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If MA Contract Includes Payment for

DSH

• Is the uncompensated care payment a “DSH”

payment

― Section 3133 of ACA is titled “Improvement to Medicare Disproportionate (DSH) Payments ― CMS’s regulation including uncompensated care

payments is part of DSH regulation

― Only DSH qualified hospitals can receive these payments

Practical Problem with MA Payments

included in the “Pricer,” but will instead make a bi-weekly payment

― do not vary with volume of claims or case mix

• Plans pay “Medicare rates” based on software

populated with data from the Medicare pricer

• Most MA plans do not routinely make payments on

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Relevance of Inclusion or Exclusion

from the “Pricer”

• MA contracts do not usually expressly refer to the “Pricer” even if that is the source of the Medicare rate information • The sequester also is not in the “Pricer,” and some

providers have argued that is one reason that MA plans may not avail themselves of the 2% sequester reduction • DSH uncompensated care issue and sequester issue are not

identical, but to the extent that the “Pricer” is relevant, neither the sequester nor the DSH uncompensated care payment is in the “Pricer”