Issue

On December 31, 2018, Centers for Medicare & Medicaid Services issued additional guidance (refer to https://content.govdelivery.com/accounts/USCMSMEDICAID/bulletins/2258940) indicating that they are withdrawing questions 33 and 34 from the Medicaid DSH guidance that was issued in January 2010, titled “Additional Information on the DSH Reporting and Audit Requirements,” and is allowing states to submit revised DSH examination reports that cover hospital services furnished before June 2, 2017.

Relevant Rule Background and Court Decisions

The December 19, 2008 DSH audit rule (73 Fed. Reg. 77904) indicated that all Medicare payments must be included in the DSH audits for Medicaid/Medicare dual-eligible patients. CMS issued “Additional Information on the DSH Reporting and Audit Requirements” in January of 2010 (commonly referred to as the “FAQ”). In that document, FAQ #33 requires DSH audits to include private insurance payments on dual-eligible Medicaid patients and FAQ #34 requires the DSH audits to include Medicare payments on Medicaid dual-eligible patients.

In recent years, several hospitals and hospital associations filed legal actions challenging the CMS guidance on including the Medicare and private insurance payments in the DSH audits. Several court decisions have been issued affecting CMS’ regulatory treatment of DSH overpayments for those hospitals.

Following court decisions, CMS issued a Final Rule on April 3, 2017, clarifying that, effective with services furnished on or after June 2, 2017, Medicare payments and private insurance payments must be included in the DSH audits for Medicaid dual-eligible patients (82 Fed. Reg. 16114-02, 16117).

The December 31, 2018 bulletin issued by CMS encourages states to “review any applicable district court or appellate court decision,” and cites the following cases as examples:

• Tenn. Hosp. Ass’n v. Azar, 908 F.3d 1029 (6th Cir. Nov. 14, 2018).
• Children’s Health Care v. CMS, 900 F.3d 1022 (8th Cir. Aug. 20, 2018).
• Children’s Hosp. of the King’s Daughters, Inc. v. Azar, 896 F.3d 615 (4th Cir. July 23, 2018).
• New Hampshire Hosp. Ass’n v. Azar, 887 F.3d 62 (1st Cir. Apr. 4, 2018).

Impact on Medicaid DSH

The bulletin indicates that “questions 33 and 34 are no longer operative,” and advises that “CMS will accept revised DSH audits that cover hospitals’ services furnished before June 2, 2017.” Per the bulletin, CMS expects that states will comply with 42, CFR Section 433.312(a) that requires any DSH overpayments identified in the audits to be redistributed to other DSH-eligible hospitals or the federal portion be refunded to CMS, regardless of whether revised DSH audits are submitted by states.

The bulletin also indicates that hospital services furnished after June 2, 2017 are covered by the Final Rule noted above, however in light of the decision in Children’s Hosp. Association of Texas v. Azar, No. 17-cv-844 (D.D.C. March 2, 2018), appeal docketed, No. 18-5135 (D.C. Cir. May 9, 2018), CMS will not be enforcing the 2017 rule as long as the Children’s Hospital Association of Texas decision remains operative in its current form, as the government’s appeal of that decision is pending at this time.

Medicaid DSH Audit Reporting Considerations

Myers and Stauffer can assist states in issuing an addendum for the DSH examination years 2011 through 2015, if modification was not already requested.

For clients that request this modification, the modified DSH examination report format would include one DSH limit calculation for each hospital that would exclude all Medicare and private insurance payments based on CMS bulletin issued December 31, 2018. For some clients, additional data collection may be required for cost report periods overlapping earlier DSH years – particularly DSH years 2011 and 2012. For many states, Myers and Stauffer already has collected the necessary data to recalculate uncompensated costs of care excluding Medicare and private insurance payments for DSH years 2013 and beyond.

For any upcoming DSH examination reports (state plan rate years 2017 and after) that include hospital services provided on or after June 2, 2017, a data caveat and applicable footnotes will be included in the report to disclose the uncertainty created by the pending appeal on the Children’s Hospital Association of Texas case. The DSH auditors are issuing a report with an opinion on a state’s compliance with the final DSH audit rule and CMS guidance; however, there are court rulings that may affect the current CMS guidance. The caveat will include a brief reference to the court rulings and any state Medicaid agency input requested.

We also understand that every state is unique and has legal counsel advice and other issues to consider. We will work with each state to understand their specific circumstances and propose any needed changes to the DSH examination report.
In view of the foregoing, state agencies should consult with their legal counsel and consider potential risks before making final decisions. State agencies may also want to consult with their regional CMS officials.