On April 30, the Centers for Medicare & Medicaid Services (CMS) published a 1500-page draft regulation detailing how it proposed paying hospitals for the inpatient care they provide to their Medicare patients in FY 2016 and invited comment on its proposal from stakeholders and interested parties.

Last week, the National Association of Urban Hospitals provided its written comments in a letter to CMS. Over the next four days NAUH presents those comments in this space:

  • Today: Medicare DSH
  • Tomorrow: Hospital inpatient rates
  • Wednesday: the hospital readmissions reduction program
  • Thursday: short hospital stays and outliers

Medicare DSH

NAUH would like to comment on three aspects of Medicare disproportionate share payments addressed in the proposed regulation: the size of the proposed FY 2016 Medicare DSH pool, the proposed methodology for distributing Medicare DSH funds, and the prospect of a meaningful increase in the number of Medicare DSH-eligible hospitals in the coming years.

The Size of the Medicare DSH Pool

NAUH is very concerned about the surprisingly large decrease in the Medicare DSH pool proposed for FY 2016. Part of this pool is predicated on a calculation of how much CMS would have paid in Medicare DSH absent the enactment of the Affordable Care Act and is then based on adjusting that figure in a number of areas, including to increase the standardized amount, the number of Medicare discharges, and changes in case mix. The final category for which an inflation factor is applied is labeled “other” and is a catch-all category for considerations such as capturing changes in Medicare payment policy since 2012, the impact of court decisions, Medicaid expansion, and others; NAUH also believes this category is the appropriate place to implement much-needed adjustments in the size of the Medicare DSH pool to reflect the growing number of hospitals becoming eligible for DSH as they serve more Medicaid patients (an issue we address below under “The Prospect of a Growing Number of Medicare DSH Hospitals”). In the FY 2015 final inpatient prospective payment system rule, this “other” factor for FY 2014 was 1.0355, which meant a 3.5 percent inflation factor attributable to this category for that year.

NAUH LogoIn the FY 2016 proposed rule, however, CMS has published a projected inflation factor for the “other” category for FY 2014 of 0.993. This significant departure from past practice accounts for a surprising $231 million reduction in available money in the uncompensated care DSH pool for FY 2016.

NAUH does not understand how the “other” factor for the same time period could change so drastically in the nine months between last August, when the final FY 2015 rule was finalized, and this April, when the proposed FY 2016 rule was proposed. For this reason, we ask CMS to provide more detailed and specific information about the various components that constitute this “other” inflation factor so we can understand why such a significant change is proposed that would have such a damaging impact on non-profit urban safety-net hospitals.

Finally, NAUH is concerned about the adequacy of the proposed Medicare DSH pool if the Supreme Court rules against the administration in the King v. Burwell case later this month. If it does, hospitals in states that used the federal exchange are likely to experience a surge in the number of uninsured patients coming through their doors – both an immediate problem for the affected hospitals and a future problem for other hospitals as well because it would almost certainly lead to changes in hospital payer mix that will increase the demand for Medicare DSH resources. NAUH hopes CMS will revisit its decision on the size of the proposed FY 2016 Medicare DSH pool if the Supreme Court rules against the administration in this case.

The Methodology for Distributing Medicare DSH Funds

NAUH is pleased that in the proposed rule, CMS acknowledges that it remains premature to propose the use of Medicare cost report worksheet S-10 for determining Factor 3 and therefore proposes continuing to employ a utilization of insured low-income patients proxy (defined as inpatient days of Medicaid patients plus inpatient days of Medicare SSI patients as defined in §412.106(b)(4) and §412.106(b)(2)(i), respectively) to determine Factor 3.

As NAUH has conveyed to you in recent years, the data from the S-10 form of the Medicare cost report that appears to be the natural foundation for such a calculation remains, in NAUH’s view, seriously flawed. The S-10 seeks to quantify the uncompensated care hospitals provide, but historically, “uncompensated care” is not a universally agreed-upon concept and hospitals have not reported their uncompensated care uniformly. Experience demonstrates that different hospitals have different, and sometimes significantly different, charity care policies, and that, in turn, affects where they report their costs on the S-10.  One hospital with a charity care policy that includes care for Medicaid patients whose stays exceeds a day limit may include that Medicaid shortfall in its charity care line on the S-10, for example, while another hospital, with a different policy, may include that shortfall in the Medicaid line of the S-10.  In this example, both hospitals are providing the same care for the same reimbursement but only one shows the shortfall as uncompensated care if payer shortfalls are not considered.  This is only one of a number of ways, including care involving Medicaid waiver populations and non-patient-specific funding streams, that NAUH believes different hospitals, even neighboring hospitals, end up categorizing and reporting uncompensated care in different ways, and hospitals in different regions and different states do the same.

In recent years NAUH’s own analysis of S-10 data has uncovered numerous instances of data reporting that raises serious questions, and our review of the most recent data finds that this continues to be the case.

Consequently, NAUH continues to believe that any use of S-10 data in its current form would pose an enormous problem. Improving the S-10 so it can be a useful tool in measuring hospitals’ uncompensated care, we believe, will require changes in the form, changes in the instructions for completing the form, and a period of auditing data submitted by hospitals to ensure that these changes are achieving their objectives.

NAUH understands that CMS is still working on this, appreciates your efforts, and welcomes the opportunity to assist in any way we can. In the meantime, we thank you for choosing a more reliable proxy for utilization by insured low-income patients instead of S-10 data and urge you to continue using this proxy until you have a better, proven, verifiable method for measuring the uncompensated care hospitals provide.

The Prospect of a Growing Number of Medicare DSH Hospitals

For urban safety-net hospitals and millions of Americans, one of the most welcome aspects of the Affordable Care Act has been its expansion of eligibility for Medicaid. This has already enabled nearly twelve million Americans to secure the access to care they had long lacked, and it appears many more will gain similar access in the coming years as even more states expand their Medicaid programs.

As more people enroll in Medicaid, hospitals are serving higher proportions of Medicaid patients and many of those hospitals will become eligible to participate in the Medicare DSH program; many, in fact, already have. As this process continues, we face the prospect of a shrinking Medicare DSH pool serving a growing number of Medicare DSH-eligible hospitals.

This prospect troubles NAUH a great deal. After all, Medicare DSH was created to help non-profit urban safety-net hospitals and others like them that face distinct challenges serving the especially large numbers of low-income residents of their communities. Those challenges may be declining in number but unquestionably remain – including significant reductions of Medicaid DSH payments beginning in 2017. The dilution of the Medicare DSH pool we can expect in the coming years – the need to divide a shrinking pool of resources among a growing number of hospitals ­– could detract from the ability of many long-time recipients of Medicare DSH, providers like urban safety-net hospitals for which the program was created, to continue meeting the needs of their communities.

To address this problem, NAUH urges CMS to consider how it might expand the Medicare DSH pool to ensure that in the coming years it reflects the addition of newly eligible hospitals. The impact of this crisis may not be great now but it soon will be, so the time to plan for it is now rather than waiting until the already-precipitous decline in Medicare DSH resources accelerates and harms vital safety-net hospitals.