1. Medicaid DSH Audit & Reporting Requirements
Healthcare Council of Western Pennsylvania & HFMA
Medicare Update Seminar
September 23, 2016
Warrendale, PA

2. Disclaimer
All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.

3. Medicaid Schedule S-7

4. Medicaid Schedule S-7

5. Medicaid DSH Payments Program History
Established by Congress in 1981
To assist Hospitals treating a disproportionate share of low-income patients to supplement standard Medicaid payments
Federal Financial Participation (FFP) – States submit claim for share of money from federal government

6. Medicaid DSH Payments Program History
Minimum Federal Criteria:
Have at least 2 Obstetricians on staff providing services to Medicaid recipients
Have at least 1% Medicaid Inpatient Utilization Rate (MIUR), OR
Meet an established Low Income Utilization Rate (LIUR) (25%)
States have flexibility with guidelines
States address program in their state plan

7. Medicaid DSH Payments Program History
Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA)
MMA established auditing and reporting requirement of DSH payments under State Medicaid programs.
OIG determined issues with financing and reporting. OIG found 9 out of 10 states overpaid.
Proposed rule for auditing and reporting requirements published in 2005.

8. Medicaid DSH Payments Final Rule - December 19, 2008
Independent audits of the Hospital specific DSH limits required beginning with State Rate Plan Years 2005 & 2006 – audits to be completed by 9/30/09 and reports due to CMS by 12/31/09. State Rate Plan 2007 audits to be completed by 9/30/10 and reports to CMS by 12/31/10.
Audits through 2010 will be transitional and informational. There was no requirement that overpayments be addressed until State Plan Rate Year 2011.

9. Medicaid DSH Payments Final Rule - December 19, 2008
Beginning with state FY 2011, any overpayments found during the audit must be refunded to the Fed or redistributed among other Hospitals in the state.
Federal participation and matching payments to states will be contingent upon the state’s completion of the independent certified audit and submission of the annual DSH report.

10. Medicaid DSH Payments Final Rule - December 19, 2008
Goal is to ensure hospitals receiving DSH payments are qualified and that payments do not exceed hospital specific DSH limits.
61 PA Hospitals qualified for DSH. (Hospital and Health System Association of PA )
Approximately 48 PA hospitals had DSH payments that exceeded the hospital specific limit in 2011.
States will continue to have flexibility regarding DSH qualification and using estimates for payments however final audit will be based on actual data for the State rate plan year.

11. Medicaid DSH Payments Hospital Specific Limit
Hospital specific limit is the basis for the Medicaid DSH allocation. It is the maximum DSH payment by Federal law.
Hospital specific limit is used throughout the Final Rule.
Hospital specific limits is calculated as follows:
Cost of Medicaid IP/OP Hospital services
+ Cost of Uninsured IP/OP Hospital services
- Payments related to Medicaid IP/OP Hospital services
- Payments related to Uninsured IP/OP Hospital services
Payments
= Hospital specific limit

12. Medicaid DSH Payments CMS Common Responses Final Rule - December 19, 2008
Revised timing and giving transition period. Opportunity to adjust, define, and develop procedures.
Not changing statutory requirements related to DSH payments or limits. Strictly a reporting and auditing guideline.
The calculation of DSH limits is not discretionary. The standards on calculating those limits are “longstanding.”
Findings from Medicaid plan rate year 2005 – 2010 will be used only to refine audit methodologies and in determining prospective hospital specific cost limits beginning with Medicaid state year 2011.

13. Medicaid DSH Payments CMS Common Responses Final Rule - December 19, 2008
In the event a state is overpaid for years ending 2011 and after, the state must refund the Federal share of the DSH money. If the state does not refund, they may have a hearing through the Medicaid disallowance process.
If there are overpayments and the state wishes to redistribute among other hospitals then the ability to redistribute must be articulated in the Federally approved state plan.
The time frames for completing the DSH audits are sufficiently long and there should be no need for extensions.

14. Medicaid DSH Payments CMS Common Responses Final Rule - December 19, 2008
Uninsured is only in the situation where the patient has no source of third party coverage.
Bad debts are non payments related to an individual that has third party coverage.
Coverage is determined on a service specific basis. If patient has insurance with only ambulatory benefit and has an inpatient stay, that is not coverage. (Final rule 12/1/14, effective 12/31/14).
Exhausted benefits and limited plan policies may also be included in uninsured. Benefits must be exhausted prior to date of service. (Final Rule 12/1/14).
Costs attributable to dual eligibles should be included in the calculation of uncompensated costs.

15. Medicaid DSH Payments CMS Common Responses Final Rule - December 19, 2008
Payments attributable to dual eligibles should offset uncompensated costs. These payments include both Medicare and Medicaid payments as well as any Medicare DSH, GME and IME payments.
Uninsured should not include improper billings, copays/deducts, lack of pre-authorization or untimely filings.
Uninsured should not include services that are not medically necessary.

16. Medicaid DSH Payments CMS Common Responses Final Rule - December 19, 2008
Payments made to a hospital for services provided to indigent patients by a state or a unit of local government within a state, shall not be considered to be a source of third party payment.
If hospitals do not separately identify uncompensated care related to services provided to individuals with no source of third party coverage, then hospitals will need to modify their accounting systems to do so.
Individuals who are covered by a state or local government (state employees or prisoners) should not be included as uninsured.

17. Medicaid DSH Payments CMS Common Responses Final Rule - December 19, 2008
States may not report only Medicaid eligible data even if the shortfall on Medicaid exceeds the total DSH allotment. The statute requires the hospital specific limit be audited and it is possible that a hospital could have a longfall on uninsured thus causing their limit to be overstated. CMS admits this situation is not likely but state that they are not certain that it never occurs.
Exception - CMS will allow a state to report only Medicaid eligible data and exclude uninsured if the state pays DSH based only on the Medicaid costs and requires every hospital to provide a certification that it incurred additional uncompensated costs related to services to uninsured individuals.

18. Medicaid DSH Payments CMS Common Responses Final Rule - December 19, 2008
Hospital specific limit should include only hospital services. Physician services should be excluded.
States do not have the flexibility to broaden or narrow the costs included in calculating the hospital specific DSH limit.
States have flexibility to vary the level of DSH payment among hospitals as long as the payments remain below the hospital specific limit.
The reporting and auditing requirements indicate Congressional concern about the calculation of the hospital specific limit.

19. Medicaid DSH Payments CMS Common Responses Final Rule - December 19, 2008
Discounts provided to uninsured patients do not reduce the hospital specific limit. Hospitals should verify that the “grossed up” charge is used in the calculation of the Medicare cost to charge ratio.
Intergovernmental transfers (IGTs) cannot be included as a cost for purposes of calculating the hospital specific limit. They are not a cost; they are a financing mechanism.
Certified Public Expenditures (CPEs) are also a financing mechanism but since they are based on actual costs incurred and are certified by a unit of government, they may be included in cost.

20. Provider taxes may be included in the hospital specific limit.
Medicaid DSH Payments CMS Common Responses Final Rule - December 19, 2008
Provider taxes may be included in the hospital specific limit.
Medicaid and uninsured information should be based on state year end.
Reports and audits will be based on best available information.
The three year time lag is sufficient to allow for audit and documentation procedures. (Audits in 2016 are for state year 2013).
If hospital year end differs from the state year end, the data will need to be allocated to cover the state year end.

21. Medicaid DSH Payments CMS Common Responses Final Rule - December 19, 2008
CMS has developed a general DSH audit and reporting protocol to provide guidance to states , DSH hospitals and auditors. The protocol is on the CMS website. (We also have a copy).
Costs of the DSH audits – states are responsible for the administration of their Medicaid programs and these audits are part of that administration.
Audit relies on existing and available information - therefore not a burden.
FFP will not be available to any state that does not submit its independent audit.
Not likely States or hospitals will decline DSH monies due to the audit requirements.

22. IP & OP uninsured charges and payments
Medicaid DSH Payments Key Required Data Elements Final Rule - December 19, 2008
IP & OP Medicaid-eligible charges and payments (i.e., traditional, CMO, dual, out of state, cost settlements)
Medicaid eligible includes paid and unpaid accounts. This includes services not billed – Medicaid observation.
Including dual eligibles with Medicaid eligible is a change from prior CMS policy. Possible reason for change?
IP & OP uninsured charges and payments
UB revenue code detail for reported charges
Cost Report crosswalks of UB codes to cost centers
Related Section 1011 payments
Other specified Financial & Cost Report data
Large data files and very labor intensive.

23. Medicaid DSH Payments Final Rule - December 19, 2008
IP cost is calculated based on the Medicare cost report per diem. OP cost is calculated based on the cost to charge ratios from the Medicare Cost Report.
Payments reduce cost to determine the net unreimbursed/uninsured amounts.
Typically, largest component of the total cost is the uninsured cost and is also the most difficult to support and document.
Service must be a Medicaid covered service to be included in the DSH limit.

24. Medicaid DSH Payments Other Insurance Proposed Rule July 19, 2016
Providers won two court cases where provider did not offset DSH limit for third party payments for Medicaid eligible patients.
They argued that regulations did not specifically state to remove these third party payments and that CMS violated the Administrative Procedures Act (APA).
Injunction issued December 2014 in Texas and Washington State. (Plaintiffs were Texas Children’s Hospital and Seattle Children’s Hospital).
Another injunction issued in New Hampshire in March (NH Hospital Assn vs. Sylvia Matthews Burwell)
In response to these cases, CMS published proposed rule in July 2016 to address (Federal Register August 15, 2016).

25. Medicaid DSH Payments Other Insurance Proposed Rule July 19, 2016
Uncompensated costs are only the costs for Medicaid eligible patients that remain “after accounting for payments received by hospitals by or on behalf of Medicaid eligible individuals including Medicare and other third party payments.”
DSH limit should reflect only the costs for which the hospital has not received payment from any source.
CMS requests comments. Due 30 days after proposed rule (September 14, 2016).

26. Discussion Examples What is Insured? What is Uninsured?
Reference Lab
Patient has health insurance, was covered on the dates of service but provider was not paid due to lack of pre-certification.
Patient has health insurance but their policy does not include maternity services. Patient is admitted for OB services – Insured or Uninsured?
Patient has no health insurance, but does have auto insurance. Patient has an accident and is admitted. The auto insurance makes a payment on this account.
Patient has no health insurance, has only an indemnity plan that pays $100/day.

27. Discussion Examples What is Insured? What is Uninsured?
Patient has health insurance with a $5,000 deductible. There has been no patient payment related to the deductible.
Patient has no health insurance, paid their bill in full for emergency services.
Patient has no health insurance, paid their bill in full for cosmetic surgery.
Patient has health insurance but their benefits were exhausted during the dates of service.
Patient qualifies for PA General Assistance but not Medicaid.

28. Medicaid DSH Surveys What is Insured? What is Uninsured?
CMS Guidance in Final Rule – If patient has “third party coverage,” the patient is insured.
These examples are likely to produce different interpretations. We have heard different conclusions from the same audit firm!
Certain situations are likely to raise questions at audit. Examples – Indemnity plans, exhausted benefits, no health coverage and grants.
Identify these accounts on the exhibits and include them in the survey.

29. Medicaid DSH Surveys Potential Audit Issues
Based on service dates during Hospital FY
Proof of Medicaid eligibility/Medicaid IDs.
Professional fees/other non-allowed services
Insurance/Financial Classes vs. self-pay
Medicaid Covered Services (Elective Services)
Fully paid accounts - include everyone
Documentation to prove lack of coverage
Patient payments to offset uninsured cost (based on date received, not date of service)
Access to patient accounting system information.
UB revenue code detail by patient

30. Medicaid DSH Surveys Potential Audit Issues
Crossover payments
Duplicate accounts
Grant payments
Inconsistent designation of insured/uninsured, charges and payments
Program charges/days larger than total charges/days

31. Medicaid DSH Payments Reduction Schedule Affordable Care Act
FFY2014
$500M
FFY2015
$600M
FFY2016
FFY2017
$1.8B
FFY2018
$5B
FFY2019
$5.6B
FFY2020
$4B
Total
$18.1B

32. Medicaid DSH Payments Reduction Schedule Bipartisan Budget Act of 2013
FFY2014
None
FFY2015
FFY2016
$1.2B
FFY2017
$1.8B
FFY2018
$5B
FFY2019
$5.6B
FFY2020
$4B
Total
$17.6B

33. Medicaid DSH Payments Reduction Schedule Protecting Access to Medicare Act of 2014
FFY2017
$1.8B
FFY2018
$4.7B
FFY2019
FFY2020
FFY2021
$4.8B
FFY2022
$5B
FFY2023
FFY2024
$4.4B
Total
$35.1B

34. Medicaid DSH Payments Reduction Schedule SGR Legislation 2015 (MACRA)
FFY2018
$2B
FFY2019
$3B
FFY2020
$4B
FFY2021
$5B
FFY2022
$6B
FFY2023
$7B
FFY2024
$8B
FFY2025
Total
$43B
Total Medicaid DSH payments for FFY 2016 = $11.891B (Kaiser Foundation), PA payments = $262M for (PA XIX State Plan)

35. Recommendations
Cost Reports are still important! Accurate cost reports are necessary for appropriate DSH Limit Calculation.
Completion of DSH Survey is very labor intensive. Plan ahead and start early. No second chances or allowances for filing amended surveys.
Have a third-party prepare or review DSH Survey.
Monitor legislation and proposed rules for further changes to DSH reduction schedule.

36. Questions?
Thoughts? Comments?

37. Hal Guthrie, Partner Chad Hovis, Manager
DHG Healthcare DHG Healthcare
Atlanta, GA Charleston, WV
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