Medicaid Expansion, Medicare DSH, Cost Report Procedures

2014 TAHFA Annual Fall Symposium
Medicaid Expansion,
Medicare DSH,
Cost Report Procedures, Appeals and
September 22, 2014
• Medicaid Expansion
• Final Medicare DSH Rule for FFY 2015
• Issuance of Notice of Program Reimbursement (NPR)
• Amending Cost Reports
• Failure to Issue a Timely NPR
• 2 Midnight Rule
• Appeals
• CMS Ruling 1498-R
• Medicare Advantage/Medicare + Choice/Managed Care Part C Days (Part
C Days)
• Rural Floor Budget Neutrality Adjustment (Rural Floor)
• Compliance
The Affordable Care Act authorizes states to expand Medicaid to adults under age 65 with
income of up to 133 percent of the federal poverty level (approximately $15,280 for a single
adult in 2013) and provides unprecedented federal funding for these states. The Federal
government will pay for 100% of the cost of coverage for newly eligible individuals through
2016, and pay no less than 90% of the cost subsequently. Expanded coverage thanks to the
Affordable Care Act through the Medicaid program and through Health Insurance
Marketplaces is expected to significantly reduce uncompensated care borne by hospitals and
other providers.
At the same time as the Affordable Care Act expands coverage that reduces levels of
uncompensated care, it also reforms Medicaid DSH allotments to reflect anticipated changes
in coverage. Currently, states make Medicaid DSH payments to hospitals that serve a
disproportionate share of low income patients and have high levels of uncompensated care
costs. States have broad discretion to distribute Medicaid DSH payments to hospitals, subject
to hospital-specific payment limits and state-wide DSH allotments. DSH allotments vary
among states. The Affordable Care Act directs that there be better targeting of this funding
towards uncompensated care.
See CMS Fact Sheet, Medicaid State Disproportionate Share Hospital Allotment
Reductions Final Rule (September 13, 2013)
Coverage under the Affordable Care Act is to
be expanded to reduce levels of
uncompensated care.
Medicare and Medicaid DSH allotments are to
be reformed under the Affordable Care Act to
reflect the changes in coverage.
On December 18, 2013, Congress passed a two-year
budget deal that among other things delayed Medicaid
DSH cuts from this year to 2016. However, now the
cuts will increase by $3.9 billion over 10 years.
Hospitals pushed for this delay because the reduced
rate of uninsured used to justify the cuts was not
expected to occur because of the enrollment problems
and the states not expanding Medicaid.
See HFMA Healthcare Business News, “Congress Passes DSH Delay,
Sequester Extension” (Dec. 19, 2013).
Total federal spending: ($ billions)
FY 2000 5.18
FY 2001 5.68
FY 2002 6.63
FY 2003 7.10
FY 2004 7.82
FY 2005 9.00
FY 2006 9.18
FY 2007 9.40
FY 2008 10.12
FY 2009 10.42
FY 2010 10.83
FY 2011 11.59
FY 2012 11.93
FY 2013 12.13
• Source: CMS, Office of the Actuary
FY 2014 12.56
FY 2015 13.38
Effective Federal Fiscal Year 2015
• New DSH formula
25% based on current formula
25 percent of what hospital would have been be paid under existing DSH
payment formula $13,383B * 25% = $3,346B
75% based on uncompensated care
New payment based in part on uncompensated care
Factor 1 - 75% of amount which would have been paid under old
DSH formula
CMS estimates this to be $9.579 billion
DSH Payment under old rule = $13.383B x 75% = $10.038B
Factor 2 - 1 minus percent change in uninsured population
CMS estimate this to be 76.19%
Uninsured percentages based on CBO estimates
• Uninsured in 2013 (based on 2010 report) = 18%,
• Estimate for 2014 published in Jul 2013 = 17%.
1-[(.1375-.18)/.18] = 1 - .2361 = .7639 less statutory reduction .002 =.7619
$10.038B x .7619B = $7.648B
This amount is fixed prospectively
• Actual amounts paid may exceed or fall short
Factor 3 - Percent of individual hospital uncompensated care
costs to total uncompensated care costs
This represents each hospital’s “piece of the pie”
CMS discusses the use of S-10 data
CMS indicates S-10 data is not yet appropriate to use
CMS proposes a proxy for uncompensated care is to count low income
CMS finalizes Medicaid eligible days and SSI days as a proxy for
uncompensated care
Interim uncompensated care payments will be distributed on a per
discharge basis
Factor 3 table includes a per-claim amount (by provider)
Per discharge interims payments for uncompensated care will now be in
Issued for fiscal years 2007-2011, and even some 2012 Cost Reports
Various issues that may need to be appealed or reopened:
• Disproportionate Share Hospital (DSH) Calculation
SSI percentage Ratios (SSI%) – Medicare Proxy (Systemic Errors and Recalculations)
Medicare Part C Days
Dual Eligible Days – Exhausted/Medicare Secondary Payor (MSP)/No Pay Days
340-B qualification
DSH Eligible Days – Medicaid Proxy
• Bad Debts
Crossover – Medicare/Medicaid
Rural Floor Budget Neutrality Adjustment (RFBNA)
2 Midnight Rule
Schedule deadlines for Reopenings
• Three (3) years from the date of the NPR
Schedule deadlines for Appeals
• 180 days from the NPR date for Appeals
Board must receive Provider’s request no later than 180 days after the Provider
received the determination being appealed
Provider is presumed to have received the determination 5 days after issuance,
unless established to the contrary by a preponderance of the evidence. (42 C.F.R. §
Date of receipt by the Board is date of delivery if delivered by a nationallyrecognized courier, or the date stamped “received” if delivered otherwise, unless
established to the contrary by a preponderance of the evidence
Determination of date of receipt is not subject to appeal
Order MEDPAR Data through the Centers for Medicare and
Medicaid Services (CMS)
• Data Usage Agreement (DUA) process
Appeal your NPRs for self- disallowed items (protest) or items
adjusted during audit
• Whether through an individual appeal or Group Appeal
Join Group Appeals
• Strength in numbers
• May not have a choice
Amend your Cost Report
Amend 2009 – 2012 filed cost reports (may or may not be
• Protested Items - for any self-disallowance items such as
• RFBNA (through FY 2011)
• SSI%
• Medicare Part C
• Dual Eligible Days – Exhausted Days / Medicare Secondary – No Pay
• Additional Medicaid Eligible Days
• Bad Debts – Crossovers (Medicare / Medicaid)
• Outliers
• Two-Midnight Rule
A provider may file or the MAC may require an amended cost
report to:
1. Correct material errors detected subsequent to the filing
of the original cost report.
2. Comply with the health insurance policies or
regulations, or
3. Reflect the settlement of a contested liability.
See HIM 15-1, § 2931.2
What to send:
• Cover letter to MAC
• Relevant Worksheet (s)
• New or revised list of protested items
• Signed certification page
• Electronic cost report (ECR) data file (resubmit)
See HIM 15-1, § 2931.2
Allina Health F/B/O Abbott Northwestern Hospital, Case No. 13-775 (RMC)
Plaintiffs challenged the PRRB’s decision that it lacked jurisdiction over an appeal filed as a
result of the MAC’s failure to issue a timely NPR
PRRB held pursuant to 42 C.F.R. § 405.1835(a)(1) that it lacked jurisdiction over the merits of
Plaintiffs’ outlier claims because plaintiffs failed to establish in their cost reports that they
were “dissatisfied” with their outlier payments. Specifically, the Board ruled that the provider
failed to adhere to the regulation at 42 C.F.R. § 405.1835(a)(1) requiring the provider to
express dissatisfaction by either claiming reimbursement for the specific cost in its cost
report, or by “self-disallowing” the cost by listing it as a “protested amount.”
Administrator did not review, Board decision was the final Agency decision and was appealed
to United States District Court in the District of Columbia.
The Department of Justice announced that it would not defend the Board’s decision to the
extent it required a provider to either claim reimbursement for the specific cost in its cost
report, or to “self-disallow” the cost on their cost report, in cases involving appeals resulting
from a MAC’s failure to issue a timely NPR.
In making this determination, the Secretary necessarily acknowledged that the provisions of
42 C.F.R. § 405.1835(a)(1) requiring a provider to express dissatisfaction in their cost report is
inconsistent with the statute in cases involving appeals from an untimely NPR.
Charleston Area Medical Center v. Sebelius, Case No. 13-643 (RMC)
On August 6, 2014, the United States District Court for the District of Columbia
enjoined CMS, its MACs and the PRRB from applying the self-disallowance
regulation to any pending or future administrative appeal to the PRRB that
involves a MAC’s failure to issue a timely NPR within twelve months of the
provider’s filing of its cost report.
In particular, the court issued an order “that the Board, the rest of [HHS] . . ., and
all current and future Medicare contractors are enjoined from applying 42 C.F.R. §
405.1835(a)(1)’s ‘dissatisfaction’ requirement for Board jurisdiction to any pending
or future Board appeal that . . . is based on the Medicare contractor’s failure to
issue a timely NPR.”
The court’s order is consistent with CMS’s “technical correction” in the 2015 final
rule, where CMS clarifies that the dissatisfaction requirement does not apply to
appeals stemming from the MAC’s failure to timely issue an NPR. CMS’s technical
correction is retroactive to October 1, 2008, and CMS states that providers may
seek reopening of any adverse decisions issued in the three years before October
1, 2014 that were based on prior application of the self-disallowance regulation.
2014 IPPS Final Rule gave an “appropriate” definition of an
inpatient admission
• When a patient stays in the hospital over two midnights
• CMS giving three months to get acclimated before case
reviews begin…Amnesty Period = Oct 1 – Dec 31, 2013 then
extended to Oct 2014
• CQ (2/4, Young, Subscription Publication) reports that Medicare’s
two-midnight rule has been delayed by six months. The rule
clarifies inpatient versus outpatient care. Medicare Part A will
consider a patient stay as inpatient if it spans two midnights. The
delay gives hospitals “time to both work on in-house tools and
systems needed to comply with the new regulation and to try to
persuade federal officials to alter the regulation.”
CMS Reasoning behind the Rule
• Limit the use of observation status to reduce the financial
• Must protest and item if no adjustment on cost report
• How will the rule be interpreted and applied?
• Proactively reduced the Inpatient Payment Rate by .2%
• Actuarial analysis suggest an increase of 40,000 admissions
New PRRB Rules (Effective March 1, 2013)
Harder to win and to file cost report appeals
More documentation than ever before
Strict interpretation of the jurisdictional rules
Must protest items want to appeal on the cost report
The PRRB is currently questioning jurisdiction when a provider
appeals an issue not adjusted or protested for all cost reporting
periods ending on or after December 31, 2008
The PRRB is generally denying jurisdiction
Need to amend cost reports that have not had an NPR issued
Protest – It may be your only avenue to appeal an issue
The appeal of a PRRB jurisdictional decision is not ripe until the
PRRB issues a decision disposing of the case in its entirety
Thus, in a multi issue case, appeal of the denial of jurisdiction
over one issue only becomes ripe when the PRRB decides all the
issues on their merits and thus disposes of the entire case
The Best Offense is a Good Defense
In light of the time, cost and speculative outcome associated with jurisdictional
challenges, a provider is well advised to attend to and if possible to resolve
jurisdiction issues at the level of the PRRB
Request PRRB reconsideration
Request CMS Administrator review
Appeal to Federal court
Cost/Benefit Analysis
The probability weighted cost of a jurisdictional appeal should be compared to the
underlying amount of payment to be recovered if the jurisdictional appeal is
A successful jurisdictional appeal returns the case to the PRRB, which does not
necessarily mean that a provider will prevail
Pursuant to CMS Ruling 1498-R, the PRRB Must Remand the
Following DSH Issues:
• Supplemental Security Income (SSI),
• Non-covered inpatient days for patients entitled to Medicare Part A and
days where the patient’s Part A benefits were Exhausted for discharges
before October 1, 2004 (Exhausted Dual Eligible days) and
• Labor/Delivery Room inpatient days (Labor Room days) for cost reports
beginning prior to October 1, 2009.
Settled or Pending Appeals in Federal Court Over the Inclusion of Medicare Part C Days in
Medicaid Fraction of DSH Calculation
• Northeast Hospital Corporation v. Sebelius, 657 F.3d 1 (D.C. Cir. 2011)
• Pre 10/1/2004
• The D.C. Circuit ruled that these days be included in the Medicaid fraction of the DSH Calculation
• Allina Health Services, et al. v. Sebelius (Case No. 13-5011)
• 2007 – 2008
• The United States District Court for the District of Columbia decided that the Agency failed to meet
notice and comment requirements in the 2004 rulemaking when the Agency attempted to include
part C days in the SSI fraction, rather than in the Medicaid fraction of the DSH Calculation
• The District Court vacated that 2004 attempted rule change, and the D.C. Circuit affirmed the
• Plaintiffs are seeking further relief at the District Court in the form of an injunction to enjoin the
Secretary from applying the vacated rule when calculating any final, tentative, or interim DSH
payments for Plaintiff Hospitals or when calculating any component of the DSH payment
calculation for any hospital cost year for Plaintiff Hospitals beginning before October 1, 2013
• Baptist Medical Center, et al. v. Sebelius (Case No. 1:11-cv-01273 (CKK))
• 1995 - 1998
• Still pending in United States District Court for the District of Columbia
In 1997, Congress enacted the Balanced Budget Act
(“BBA”) of 1997, § 4410(a), Pub. L. No. 105-33,
requiring the wage index for hospitals located in an
urban area to not be less that the wage index for
hospitals located in rural areas in the same state.
The BBA of 1997 provided that “the area wage index
applicable . . . to any hospital which is not located in
a rural area . . . may not be less than the area wage
index applicable . . . to hospitals located in rural
areas in the State in which the hospital is located.”
Rather than adjusting area wage indexes to achieve budget neutrality, the
Secretary instead adjusted the standardized amount. The Secretary then
carried forward the adjusted standardized amount from year to year.
• Example: If the rural floor threatened to increase aggregate payments in a
particular year, a downward adjustment to the standardized amount was
applied to offset the effect of the rural floor.
The Problem: The Secretary duplicated prior adjustments by each year
calculating the full amount of the adjustment necessary to counteract the
effect of the rural floor and then applying that adjustment to a figure that
includes adjustments carried over from previous years.
The Cumulative Effect: The improperly duplicative budget neutrality
adjustments reduced the payment levels below what they otherwise should
have been.
In Cape Cod Hosp. v. Sebelius, 630 F.3d 203 (D.C. Cir.
2011), the D.C. Circuit held that the Secretary’s
application of the RFBNA for FY 2007 and 2008 was
improperly computed as a result of
methodological/mathematical errors on the part of
the Secretary. See 76 FR 25787, 25787-26084 (May
5, 2011).
Accordingly, under Cape Cod, the Secretary is
obligated to correct the RFBNA to afford full and
complete relief to the Provider regarding this issue.
Based on Cape Cod, Providers settled and received
payment for this issue from CMS just last year.
Numerous Providers have since appealed the same
issue and now CMS is offering to settle with these
Providers as well.
Still time to appeal the issue since the delay of the
issuance of the NPRs, but better hurry!
CMS, in its 2014 final rule, stated that Worksheet S-10 is the only national
data source that includes uncompensated care cost data for all Medicare
CMS also detailed that it may proceed with a proposal to use S-10 to
determine uncompensated care costs in the future, once hospitals are
submitting accurate and consistent data through the worksheet.
CMS further stated that, “hospitals attest to the accuracy and completeness
of the information reported in the cost report at the time of submission”,
when discussing the use of S-10 for payment purposes.
CMS has not indicated when it will transition from the use of Medicaid + SSI
days to S-10 data.
Given the dollars at stake, and the audit/compliance risk once S-10 data is
audited, now is the time for hospitals to ensure data reported on S-10 is
Audit and Compliance Activity Increasing in scope
• Concerns have been raised by Senator Grassley that savings under the 340B program are
not being reinvested toward the mission of providing uncompensated care.
• House and Senate negotiators signed off on an increase in spending from $4.4MM to
$10.2MM, which includes an additional $6MM for new 340B program integrity efforts.
• Hospitals that dispense 340B drugs can expect increased scrutiny through audit and
enforcement activity.
Published Audit Results
• 51 audits have been conducted, where results have been published
• 19 had no findings and 7 had findings corrected at audit
• 16 had major violations including the repayment of 340B discounts to the
• 9 had major violations, but sanctions have yet to be published.
• In summary, 63% of the audits resulted in some type of violation and sanctions either
levied or pending.
Given the increased scrutiny and enforcement activity, hospitals should be conducting
internal audits and/or engaging firms to conduct these audits as a third party as part
of their ongoing compliance program.
Changes in Medicaid and Medicare DSH
• Reduction in reimbursement, more important than ever to preserve
your appeal rights
Changes in Appeals Rules
• Many pitfalls, Board is ruling against Providers on jurisdiction
• Must protest an item if no adjustment on cost report
CMS Ruling 1498-R SSI Methodology applied to all NPRs that
have issued over the last 2 years
• Board is no longer remanding
• Board is breaking DSH/SSI issue into multiple components
• S-10
• 340B
Corinna Goron
Kristin L. DeGroat, Esq.
Healthcare Reimbursement and
Compliance Counsel
Healthcare Reimbursement Services
Southwest Consulting Associates
17101 Preston Road, Suite 220
Dallas, TX 75248
2805 N. Dallas Parkway, Suite 620
Plano, TX 75093
Phone: (214) 210-0881
Fax: (214) 210-0889
Main: (972) 732-8100
Direct: (682) 518-1489
Fax: (972) 732-7775
Email: [email protected]
Email: [email protected]

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