Medicare DSH: Payment and Reporting

Medicare Disproportionate Share Hospital (DSH) payments are a critical and significant piece of total Medicare payments for qualifying hospitals. These payments are intended to offset costs incurred by hospitals treating a large or disproportionate number of indigent patients. Although the empirically justified DSH payment has been reduced substantially through the regulations implemented by the Affordable Care Act, it remains a very important component used to qualify hospitals for the uncompensated care payment as well as 340B. Furthermore, this continues to be a significant payment adjustment for qualifying hospitals, and utmost attention is needed to ensure hospitals are compliant and their reimbursement is maximized.

According to section 1886(d) (5) (F) of the Act, there are two methods for a hospital to qualify for the Medicare DSH adjustment. The primary method to qualify is based on Disproportionate Patient Percentage (DPP). The alternate special exception method is for urban hospitals with 100 or more beds “that can demonstrate that more than 30% of their total net inpatient care revenues come from state and local governments for indigent care (other than Medicare or Medicaid).”

The ACA changed the method for computing Medicare DSH adjustment effective FFY 2014. This new DSH payment can be broken into two parts (listed below), but it’s important to keep in mind that hospitals must be eligible for the empirically justified DSH payment first in order to qualify for the uncompensated care payment.

• 25% of total DSH payments – an empirically justified DSH payment: There are several complex DSH reimbursement formulas mandated by statute used to calculate the DSH patient percentage. The formulas consist of two fractions: SSI Ratio calculated by CMS and Medicaid percentage calculated through the cost report.
• 75% of total DSH payments – uncompensated care payment: There’s a fixed uncompensated care pool where providers may receive additional compensation based on their level of uncompensated care relative to all qualifying providers. Payment is a product of 3 factors: ((Factor 1 x Factor 2) x Factor 3).
  • Factor 1 is the total unadjusted uncompensated care pool, which is 75% of what DSH payments would have been under the old methodology. This doesn’t get updated beyond the initial calculations, so it’s important to make sure you are capturing all eligible Medicaid days upfront.
  • Factor 2 reduces the total pool calculated in Factor 1 based on the changes in the uninsured rate.
  • Factor 3 is the hospitals’ piece of the pie. This is where S-10 comes into play, as line 30 of S-10 will be used to distribute $8.35 billion in uncompensated care costs based on the FFY2020 IPPS Final Rule.

New Documentation Requirements for DSH Eligible Hospitals
The FY 2019 Medicare IPPS final rule made some changes to the supporting documentation requirements for Medicare cost reports with periods beginning on or after September 1, 2018. Failure to include detailed listings of eligible Medicaid days as well as detailed listings of charity care and uninsured discounts claimed on cost reports will result in a rejected submission due to “lack of supported documentation.” The full requirement details are listed on the CMS website.

Medicare Reimbursement Assistance
If you have any questions as you navigate S-10/DSH audits, or if you need assistance completing these cost report worksheets and relevant supporting documents, click here to get started.