Third Party Payments
Beginning with the adoption of the 2008 DSH audit rule, the cost of services related to dually enrolled (Medicare and Medicaid or Private Insurance and Medicaid) individuals has been included in the DSH calculation of uncompensated care costs. However, the inclusion of the associated Medicare and other third party payments as a reduction to dually eligible costs has been the center of numerous court cases nationwide. The treatment of these payments has undergone several iterations over the years ranging from offsetting all the payments, to offsetting none of the payments, to only offsetting payments on or after June 2, 2017. This act now only allows the inclusion of costs and payments for services for which the Medicaid state plan or waiver is the primary payor for such services. Therefore, the Act entirely excludes both the costs and payments for services related to dually enrolled individuals from uncompensated care costs.
This revised treatment of dually enrolled individuals closely resembles the approach most states took prior to the release of the DSH audit rule in 2008 and the resulting DSH audits. Most states did not include any of the dually enrolled individual costs or payments prior to the 2008 DSH audit rule. States that have revised their DSH payment methodologies related to dually enrolled individuals in recent years will need to evaluate whether this change results in DSH payments being allocated to hospitals that do not meet the state’s DSH policy objectives.
Application of Limits for Certain Hospitals
Some hospitals may still qualify for an exception to continue to include the dually enrolled individuals (costs and payments) in their uncompensated care costs as is done currently under the Medicaid DSH limit calculations (as of 1/1/2020), if it results in a higher DSH limit.
To qualify for the exception the hospital must be in the 97th percentile of all hospitals in the number of Medicare SSI days or percentage of Medicare SSI days to total inpatient days in its most recent cost reporting period.
Medicare SSI days are a statistic commonly used in the Medicare DSH payment calculations so hospitals are familiar with this statistic. However, it has not been commonly used in the Medicaid DSH calculations. Medicare SSI days are days where patients were entitled to benefits under Medicare Part A and to supplemental security income (SSI) benefits (excluding any State supplementary benefits paid with respect to such patients).
The addition of this exception could complicate DSH payment methodologies for states that wish to maximize payments to safety net hospitals during the DSH payment process. There also appears to be a need for additional guidance from CMS related to several issues including clarification of what is meant by most recent cost report period SSI ratio when making DSH payments and performing the DSH examination.
These DSH amendments take effect on October 1, 2021, and apply to payments made during fiscal years beginning on or after such date. It is not clear at this time whether CMS intends to implement this based on federal fiscal year, state fiscal years, or hospital fiscal years. Further guidance will be needed from CMS related to the effective date and whether a pro-ration will need to be made at the time of the DSH audit.