To reiterate and clarify policies intended to ensure that only actual uncompensated care costs are included in the Medicaid hospital-specific disproportionate share hospital (DSH) limit, CMS is proposing to add language to 42 C.F.R. sec. 447.299(c)(10). This Proposed rule would explicitly state that total annual costs are determined on a hospital-specific, aggregate basis, not a service-specific basis or using estimated costs of individual patients, and that costs include all third-party payments including those by Medicare and private insurance (Proposed rule, 81 FR 53980, August 15, 2016).
DSH payment limits. DSHs receive additional payments from the federal government to take into account the financial situation of hospitals that serve a disproportionate share of low-income patients with special needs; payments are limited to certain amounts for each state, hospital-specific limits, qualification requirements, and auditing requirements. Since 1993, Congress has imposed the limits through legislative measures to ensure that DSH payment adjustments do not exceed net costs—or total costs—incurred by operating the hospitals. For example, Soc. Sec. Act sec.1923(j)(2)(B) requires that DSH audits must verify that the calculation of hospital-specific limits includes only the uncompensated care costs of providing services to individuals who either are eligible for medical assistance under the state Medicaid plan or have no health insurance.
In implementing these requirements, CMS promulgated regulations and policy guidance where it interpreted Congress as intending to prevent hospitals from receiving DSH payments above the level of any net uncompensated cost incurred in the treatment of Medicaid-eligible or uninsured individuals. The agency also included all costs and payments associated with dual eligibles, including Medicare payments received by the hospital, to be included in the calculation of the hospital-specific DSH limit (73 FR 77904, December 19, 2008).
Cost calculation clarification. Although CMS believes that its regulations are consistent with Congressional intent and are clear, the agency is proposing to modify the regulation to make its “cost” calculation requirements explicit. This is in response to “numerous” questions regarding the calculation, and to prevent hospitals from receiving assistance with costs that have already been compensated by third-party payments. CMS acknowledged that there will be instances where Medicaid payments will be greater than the costs of treating Medicaid-eligible patients, but will nonetheless require all Medicaid payments to be included in the calculation, ensuring that those excess payments are applied to the uncompensated care costs that result from the uninsured calculation.
Comments requested. In the Proposed rule, the agency noted that it is aware of one court that questioned whether CMS’ interpretation taking third-party payments into account when calculating uncompensated care costs of Medicaid patients is permissible (see CMS unable to recoup so-called DSH overpayments from New Hampshire hospitals, March 14, 2016). CMS disagreed with the court’s reasoning, arguing that all third-party payments should be taken into account to better reflect the real economic burden of hospitals that treat low-income patients; however, the agency did request comments on this issue.
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