DSH/UCC – FY 2020 Final Rules

Solving Tough Medicaid Math Problems

CMS posted its fiscal year (FY) 2020 Hospital Inpatient Prospective Payment Systems for Acute Care Hospital final rules on August 2. These rules contain changes to the three factors that determine the payment calculation for Medicare disproportionate share hospitals (DSH). Factors 1 and 2 are based on the same premise as prior years, while factor 3’s calculation is based on a series of steps different from prior years. Read on to learn more about the three factors.

  • Factor 1 for FY 2020 is $12,437,591,742.69. This amount is 75 percent of $16,583,455,656.92, which is the estimated amount of Medicare DSH payments for FY 2020 that would have been paid using the methodology prior to the Affordable Care Act. The method for this calculation remains the same as FY 2019, but is approximately a $200 million increase.
  • Factor 2 for FY 2020 is $8,350,599,096.04. This is calculated by incorporating CMS’ Office of the Actuary estimates to determine the change in population of individuals without insurance. This adjustment factor is 67.14 percent for FY 2020. This factor is multiplied by the $12.4 billion that was calculated in factor 1 to determine the uncompensated care pool. The method for this calculation remains the same, but it represents about a $77 million increase from the FY 2019 factor 2.
  • Factor 3 is the hospital-specific value that expresses the proportion of uncompensated care costs (UCC). UCC is defined as the amount on Line 30 of Worksheet S-10 of the Medicare cost report, which is the cost of charity care (Line 23) and the cost of non-Medicare and nonreimbursable Medicare bad debt (Line 29). While FY 2019 used a three-year average of UCC data (two years being Worksheet S-10 information and another year being the low-income day proxy), FY 2020 will be using only FY 2015 UCC information. As a result, FY 2020 is the first year that does not use an average of multiple periods and is the first time payments are distributed solely on Worksheet S-10 reporting. Here are the steps to select the FY 2020 UCC amount:
    • Step 1: Select the provider’s longest cost report from its FY 2015 cost reports.
    • Step 2: Annualize the UCC from Worksheet S-10, Line 30, if the cost report selected is more or less than 12 months.
    • Step 3: Combine the annualized UCC for hospitals that have merged.
    • Step 4: For Indian Health Service and tribal and Puerto Rico hospitals, use low-income days proxy based on FY 2013 cost report data and the most recent available Supplemental Security Income ratio.
    • Step 5: Remaining DSH-eligible hospitals use annualized UCC Worksheet S-10, Line 30 based on FY 2015 cost report data (from step 3). The hospitals where factor 3 is calculated in step 4 are excluded from this calculation.

In summary, the three factors taken into consideration for the calculation of a hospital’s FY 2020 DSH payments have been revised. There was much debate over whether CMS would use FY 2015 or FY 2017 Worksheet S-10 information as the basis to determine uncompensated care. Ultimately, FY 2015 information prevailed because CMS conducted audits that accounted for approximately half of the proposed total uncompensated care payments. Accordingly, CMS has begun auditing FY 2017 Worksheet S-10 information, indicating that it is likely the 2017 schedule will determine future payments.

All Medicare DSH hospitals should review the Worksheet S-10 data previously submitted and amend their Worksheet S-10 reporting for FY 2017 and subsequent years for any errors. In addition, beginning with FY 2019 cost reports, hospitals must submit a detailed list of charity patients with the cost report submission or risk rejection by the Medicare Administrative Contractor. For more information, reach out to your BKD trusted advisor or use the Contact Us form below.


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