DSH/UCC – FY 2020 Proposed Rules

Thoughtware Article Published: May 21, 2019
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This spring, CMS posted its fiscal year (FY) 2020 Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals proposed rules. These rules contain proposed 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 that’s different from prior years. Read on to learn more about the three factors:

  • Factor 1 for FY 2020 is proposed to be $12,643,011,209.74. This amount is 75 percent of $16,857,348,279.65, which is the estimated amount of Medicare DSH payments for FY 2020. The method for this calculation remains the same, but it represents about a $400 million increase from FY 2019 factor 1.
  • Factor 2 for FY 2020 is proposed to be $8,488,517,726.22. 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 proposed to be 67.14 percent for FY 2020. This factor is multiplied by the $12.6 billion that was calculated in factor 1 to determine the proposed uncompensated care pool. The method for this calculation remains the same, but it represents about a $216 million increase from 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 final rules used an average of three years of UCC data, FY 2020 is proposed to use only FY 2015. Here are the proposed 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 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 SSI 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.

      The proposed rule changes for factor 3 bring up a few additional points organizations should consider. First, CMS is seeking public comments on whether FY 2015 or FY 2017 UCC amounts should be used. A sample of hospitals’ UCC data for FY 2015 was audited. FY 2016 isn’t being pursued because the S-10 data was filed with the same instructions as FY 2015. FY 2017 is based on revised S-10 instructions. The instruction changes involved discharge dates versus transaction dates. Another point to consider is the proposed rule includes S-10 data updated in the Healthcare Cost Report Information System (HCRIS) through February 15, 2019, but the final rule expects to use the March 2019 update. When FY 2019 rules were finalized, CMS actually used the June HCRIS data.


The three factors taken into consideration for the calculation of a hospital’s FY 2020 DSH payments have been revised. Factors 1 and 2 are calculated the same as the prior year and are projected to increase for FY 2020. As for factor 3, based on the revised steps of one year versus three years and the additional points to consider, all Medicare DSH hospitals should review the S-10 data they previously submitted and amend their S-10 reporting for FY 2016 and subsequent years for any errors prior to the June 2019 HCRIS update.

If you have questions or would like assistance with your DSH S-10 uncompensated care, read more here or complete the Contact Us form below and a trusted advisor will be in touch shortly.

For more resources and insight on S-10, check out our BKD Thoughtware® here.

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