Understanding Charity Care/Bad Debt for Hospitals in South Dakota Dave Hewett, President/CEO South Dakota Association of Healthcare Organizations Medicaid Opportunities and Challenges Task Force April 24, 2013

Fiscal Cliff Update- South Dakota Existing Legislative Medicare CutsTen-Year Impact ACA Cuts (all provider settings)($423,051,300) Sequestration Cuts (all provider settings)($134,825,200) Bad Debt Payment Cuts (all provider settings)($1,808,500) Coding Adjustment Cuts (all provider settings)($33,564, 900) Existing Regulatory Medicare CutsTen-Year Impact Coding Adjustment Cuts (inpatient/home health)($50,144,000) Additional Medicare Cuts Under ConsiderationTen-Year Impact Outpatient E/M Cuts (outpatient hospital)($37,181,300) Indirect Medical Education Cuts (inpatient hospital)($30,693,300) Direct Medical Education Cuts (inpatient hospital)($10,534,100) Bad Debt Payment Cuts (all provider settings)($10, 697,200) SCH Program Elimination (inpatient hospital)($128, 412, 700) CAH Payment Cuts (inpatient/outpatient hospital)($15, 998, 500) Elimination of Frontier Floor (inpatient/outpatient hospital)($428, 811, 300) Source: CMS Hospital Cost Report Information System File (HCRIS); CMS MEDPAR File

Definitions

Charity Care Definition Charity care is care for which hospitals never expected to be reimbursed. Source: Medicare Provider Reimbursement Manual

Bad Debt Definition A hospital incurs bad debt when it cannot obtain reimbursement for care provided; this happens when patients are unable to pay their bills, but do not apply for charity care, or are willing to pay their bills. Source: Medicare Provider Reimbursement Manual

Uncompensated Care Uncompensated care is an overall measure of hospital care provided for which no payment was received from the patient or insurer. Source: Medicare Provider Reimbursement Manual

Process

Bad Debt and Charity Care Hospitals provide varying levels of charity care, which must be budgeted for and financed by the hospital depending on the: -hospital’s mission - financial condition - geographic location - other factors Hospitals typically use a process to identify who can and cannot afford to pay, in advance of billing, in order to anticipate whether the patient’s care needs to be funded through an alternative source, such as a charity care fund. Hospitals also attempt to identify patients who are unable to pay during the billing and collection process.

Bad Debt and Charity Care Depending on a variety of factors, including whether a patient self- identifies as medically indigent or underinsured in timely manner, care may be classified as either charity care or bad debt. Bad debt is often generated by medically indigent and/or uninsured patients, making the distinctions between the two categories arbitrary at best.

Reporting

Background Worksheet S-10 of the Medicare hospital cost report calculates a hospital’s uncompensated care. Centers for Medicare and Medicaid Services (CMS) uses charity care data for: - Calculation of Electronic Health Records (EHR) incentive payments. - Will likely use to determine the amount a hospital will be paid from the uncompensated care pool, Medicare disproportionate share hospital (MDH) payment beginning October 1,2013.

Worksheet S-10 (Form ) Effective May 1, All acute care hospitals, including critical care hospitals. Calculates a hospital’s net uncompensated care costs e.g. payments less costs using the total cost to charge ratio (CCR) for: - Services to Medicaid patients; - Services to SCHIP patients; - Services to patients covered by state or local government indigent care program; - Services to patients who are given a discount under a hospital’s charity care policy; - Services for non-Medicare and nonreimbursable Medicare bad debt. Includes all uncompensated care for hospital inpatient and outpatient services. Does not include uncompensated care for services furnished by physicians or other professionals, even if they are employed by the hospital.

South Dakota Cost of Charity Care (Line 23): ($33,743,081) Cost of Non-Medicare Bad Debt Expense (Line 29): ($40,055,269) Cost of Non-Medicare Uncompensated Care Expense (Line 30): ($73,798,350) Source: CMS Hospital Cost Report Information System File (HCRIS); Cost Reports Filed 2010 and 2011

Fiscal Cliff Update- South Dakota Existing Legislative Medicare CutsTen-Year Impact ACA Cuts (all provider settings)($423,051,300) Sequestration Cuts (all provider settings)($134,825,200) Bad Debt Payment Cuts (all provider settings)($1,808,500) Coding Adjustment Cuts (all provider settings)($33,564, 900) Existing Regulatory Medicare CutsTen-Year Impact Coding Adjustment Cuts (inpatient/home health)($50,144,000) Additional Medicare Cuts Under ConsiderationTen-Year Impact Outpatient E/M Cuts (outpatient hospital)($37,181,300) Indirect Medical Education Cuts (inpatient hospital)($30,693,300) Direct Medical Education Cuts (inpatient hospital)($10,534,100) Bad Debt Payment Cuts (all provider settings)($10, 697,200) SCH Program Elimination (inpatient hospital)($128, 412, 700) CAH Payment Cuts (inpatient/outpatient hospital)($15, 998, 500) Elimination of Frontier Floor (inpatient/outpatient hospital)($428, 811, 300) Source: CMS Hospital Cost Report Information System File (HCRIS); CMS MEDPAR File

Questions & Thank you Dave Hewett, President/CEO South Dakota Association of Healthcare Organizations 3708 Brooks Place Sioux Falls, SD Ph Fax