“From Here to Eternity: The Medicare S-10 and Uncompensated Care Audits,” was presented at the Healthcare Financial Management Association’s Annual National Institute.  This presentation takes an in-depth look at the Centers for Medicare & Medicaid Services 2552-10 Medicare cost report worksheet S-10, and explains how hospital payments for uncompensated care will be affected by recent changes to the regulations, as well as examines best practices used to complete S-10.

1. June 24-27, 2018
Jonathan Skaggs, MBA, MHA
Senior Manager– PYA
Christopher Kenny, JD
Partner, King & Spalding
HFMA 2018 ANNUAL CONFERENCE
From Here to Eternity: The Medicare
S-10 and Uncompensated Care Audits

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Agenda
Disproportionate Share Hospital Background
CMS Form 2552, Worksheet S-10
Recently Released Rules and Transmittals
Opportunities

3. Disproportionate Share Hospital Background

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Medicare DSH Payment Adjustment and
Additional Payment for Uncompensated Care
 Section 1886(d)(5)(F) of the Act provides for additional
Medicare payments to subsection (d) hospitals serving a
significantly disproportionate number of low-income
patients
 A hospital may qualify by one of two methods:
 “Pickle” method
 Statutory DSH Formula

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Medicare DSH Payment Adjustment and
Additional Payment for Uncompensated Care (cont.)
 “Pickle” method
 “Urban” Hospitals
 100 beds or more
 >30% of Net Inpatient Revenue derived from state and local
government payments for care furnished to low-income patients

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Medicare DSH Payment Adjustment and
Additional Payment for Uncompensated Care (cont.)
 Statutory DSH Formula
 Hospital’s geographic designation
 Number of beds1
 Disproportionate Share Percentage (DPP)
 Medicare Fraction (SSI Fraction):
 Medicare Part A and SSI Days (entitled to both)
 Total Medicare Part A Days
 Medicaid Fraction
 Medicaid Eligible Days (not entitled to Medicare Part A)
 Total Patient Days2
Note:
1) Beds are determined in accordance with bed counting rules for the IME Adjustment under 412.105(b)
2) DSH statutory reference to days apply only to hospital acute care inpatient days

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Medicare DSH Payment Primary Qualifications

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Medicare DSH Payment Section 3133
 The Affordable Care Act (ACA) required DSH payments to be reduced by
approximately $22.1 billion from FY14 to FY19
 Beginning in FY14, Section 3133 of the ACA modified the methodology for
computing the Medicare DSH payments into two pieces:
 Empirical Medicare DSH (25%)
 Uncompensated Care (75%)
 Reduced to incorporate changes to uninsured <65 years old
Note:
1) Douglas W. Elmendorf, Director of the Congressional Budget Office. March 20, 2010. Letter to Nancy Pelosi, Speaker, U.S. House of Representatives, Table 5. (accessed 9/21/13)
2) Published in the April 25, 2018 Federal Fiscal Year 2019 IPPS Proposed Rule

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Medicare DSH Payment Section 3133
Uncompensated Care Exceptions
 Uncompensated Care Exceptions
 Puerto Rico Hospitals (eligible)
 Maryland Hospitals (not eligible since not included in IPPS)
 Sole Community Hospitals (SCH)
 Hospital-specific rate (not eligible)
 IPPS rate (eligible)
 Medicare Dependent Hospital (MDH) (eligible)
 IPPS Bundled Payment for Care Improvement (BPCI) and Comprehensive Care for
Joint Replacement Model (CCJRM) hospitals (eligible)
 Rural Community Hospital Demonstration Program (not eligible)
 30 hospitals continue participation through 12/31/2021
 Upon completion, hospitals revert to IPPS and will become eligible; participation is
based upon their DSH criteria, similar to all other IPPS hospitals

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Medicare DSH Payments

11. CMS Form 2552, Worksheet S-10

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Overview
 Why does the reporting of charity, uncompensated care, and
bad debt matter?
 Nonprofit hospitals under increased scrutiny
 Are the provided benefits sufficient to warrant tax
exemptions?
 Federal, state, or local level exemption, tax exempt
bonds, charitable deduction, other?
 Reporting can affect payment amounts
 Disproportionate Share Hospital (DSH)
 Public perception

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Overview (cont.)
 Federal reporting requirements
 Calculations of the cost of charity and indigent care
 Developing a workplan to aid hospital staff, counsel, the C-Suite,
and the Board in preparing a uniform message

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How It All Started

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Senator Grassley

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Senator Baucus
April 25, 2005
"The purpose of giving taxpayers a charitable deduction
is to encourage charitable works--bestowing this tax benefit
is a public trust. Unfortunately, many entities organized as
supporting organizations are little more than private piggy
banks for greedy individuals..."

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Recent Articles and Publications
 “Tax breaks for nonprofit hospitals soar to $24.6B: 5 things to know”
– Becker’s Hospital Review, June 18, 2015
 “Not-for-profit hospital's tax exemption could signal trouble for
others”
– Modern Healthcare, July 8, 2015
 HOSPITAL UNCOMPENSATED CARE: Federal Action Needed to Better
Align Payments with Costs
– U.S. Government Accountability Office, August 1, 2016

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Worksheet S-10
 Section 112(b) of the Balanced Budget
Refinement Act (BBRA) requires that
short-term acute care hospitals (1886[d] of
the Act) submit cost reports containing
data on the cost incurred by the hospital
for providing inpatient and outpatient
hospital services for which the hospital is
not compensated

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Reporting Period

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Definitions
 Uncompensated Care - Charity care and bad debt, which
includes non-Medicare bad debt and non-reimbursable
Medicare bad debt; uncompensated care cost (UCC) does
not include courtesy allowances or discounts
 Non-Medicare Bad Debt - Health services for which a hospital
determines the non-Medicare patient has the financial capacity to pay,
but the non-Medicare patient is unwilling to settle the claim
 Non-Reimbursable Medicare Bad Debt - Amount of allowable
Medicare coinsurance and deductibles considered to be uncollectible
but are not reimbursed by Medicare

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Definitions (cont.)
 Charity Care - Health services for which a hospital demonstrates
that the patient is unable to pay; for Medicare purposes, charity
care is not reimbursable and unpaid amounts associated with
charity care are not considered as an allowable Medicare bad debt
 Uninsured Patients - Individuals with no source of third party
healthcare coverage (insurance)
 Medically Indigent Patients - Individuals who use or commit all
available current and expected resources to pay for medical bills,
and not limited to a defined percent of the Federal Poverty
Guidelines, but follows specific hospital policy
Source: CMS 2552-10 S-10 Instructions

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Worksheet S-10 Data Collection
 All applicable lines should be completed
 Need to Identify:
 Medicaid
 SCHIP
 Provider taxes/assessments
 Medicaid DSH
 State or local government indigent care
 Grants, gifts, income related to uncompensated and indigent care
 Charity care
 Bad debts

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Worksheet S-10 Line Items
Hospital Uncompensated and Indigent Care Data
Uncompensated and indigent care cost computation
 Uninsured Patients: list patients’ total charges
 Insured Patients: patients covered by a public program or private
insurer with which the provider has a contractual relationship

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CMS Comments Regarding S-10
FY16
 …it remains premature to propose the use of Worksheet S-10 data for
purposes of determining Factor 3 for FY 2016…We still intend to propose
through future rulemaking the use of the Worksheet S–10 data for purposes of
determining Factor 3
FY17
 We expect data from the revised Worksheet S-10 to be available to use in the
calculation of Factor 3 in the near future, and no later than FY2021
FY18
 Growing correlation between the Worksheet S-10 data and IRS 990 data
FY19 Proposed Rule
 No alternative data…currently available…that are a better proxy for the costs …
for treating uninsured individuals

25. Recently Released Rules and Transmittals

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Transmittal 10 – November 18, 2016
 Clarified that hospitals may report any discounts given to
uninsured patients who meet the hospital’s charity care criteria
 This includes patients with coverage from an entity that does not have a
contractual relationship with the provider
 Pre-10/1/2016 – report based on date of service; report based on
total initial payment obligation (regardless of % discount)
 Post-10/1/2016 – report based on date of write-off (not DOS);
report based on amount written off (taking into account %
discount)

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FY18 Final Rule
 Incorporated 3-year blended transition
 S-10 UCC in Year 1 as 1/3 of Factor 3, transitioning completely to UCC by Year 3
 Uncompensated care re-defined
 Cost of charity care + cost of non-Medicare bad debt
 Medicaid shortfall will no longer be included

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FY18 Final Rule (cont.)
 Implemented Factor 3 changes from proposed rule,
incorporating total UCC from Worksheet S-10
 Maintained that proposed 3-year transition and change to
UCC definition will be incorporated in the future
 Working to release clear S-10 instructions and provide further
guidance to assist with completing
 Proposed to audit highest UCC providers and other providers
through random sampling

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Transmittal 11 – September 29, 2017
 Transmittal 11
 Changed the guidance for reporting on Worksheet S-10 Line 20 to
include claims that meet the provider’s Financial Assistance Policy
(FAP) in addition to charity
 Discounts for uninsured patients under FAP are included
 Pre-10/1/2016 treatment of non-discounted charges – are the amounts
“expected to be received?”
 MedLearn Example 7
 Charity care charges attributable to deductibles and
co-insurance are no longer reduced by CCR

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Transmittal 11 – September 29, 2017
 Transmittal 11
 Charges for non-covered services for Medicaid enrollees and charges
for days exceeding length-of-stay limit can be reported as charity care
or financial assistance, if part of CCP or FAP policy
 Non-Reimbursable Medicare bad debt is no longer subject to CCR

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CMS Q&As
 CMS Q&As on S-10
 Clarifies “written off” bad debts
 A.2: Amount reported for “all other non-Medicare bad debt must be net of
recovery”
 Advised hospitals that did not amend FYs 2014 and 2015 to ensure
they are clear about new Level 1 edits
 Employee, prompt pay, and clergy discounts are not financial
assistance
 State law limits on billing uninsured patients must be written in policies
 Provides additional guidance from MedLearn ex. 7:
 A.14: “if line 22 is greater than line 20, then line 23 must be zero”
 A.20: “hospital cannot choose to exclude certain patient populations”

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FY19 Proposed Rule
 Increases funding for UCC from $11.67 billion to $12.22 billion –
reflection of increase in uninsured
 Detailed patient listing of all charity/uninsured discounts claimed
on Worksheet S-10 required for cost reporting periods beginning
on or after October 1, 2018
 CMS will “trim” aberrant data for purposes of distributing UCC
pool
 CMS will consider data “aberrant” for any hospital with significant increases
in uncompensated care reflected in its resubmitted S-10 data for FY 2014
and FY 2015
 Risk that valid data will be trimmed due to better reporting by hospitals as
clearer instructions came out

33. Develop a Workplan and Educate

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Develop a Cross-Departmental Workplan
 Identify Key Stakeholders
 e.g., Decision Support, Finance, Centralized Billing Office
 Data elements required
 Bad debt review
 Charity policy review
 Create Timeline
 Amended Medicare cost reports
 Medicaid days retro-eligibility

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Develop a Cross-Departmental Workplan cont.
 Review FY19 Proposed Rule
 Identify Reports
 Internal Reports
 External Reports and Surveys
 Audited Financial Statements
 Community Benefit Reports
 Develop a Reconciliation Process

36. PYA, P.C.
800.270.9629 | www.pyapc.com
Thank you!
Jonathan Skaggs, MBA, MHA
Senior Manager-- PYA
jskaggs@pyapc.com
(800) 270-9629
Christopher Kenny
Partner
King & Spalding
ckenny@kslaw.com
(202) 626-9253