Implementation of Disproportionate Share Hospital Adjustment Payments Audit Rule

1. Implementation of Disproportionate Share Hospital Adjustment Payments Audit Rule

2. Presented by: • Mark Hilton, Partner, Baltimore • John Kraft, Partner, Baltimore

3. Purpose of Disproportionate Share Hospital Payments Final Rule Published December 19, 2008 Implements 42 CFR §447.299(c) & (d) and 42 CFR §455.300 through §455.304 to satisfy requirements set forth under the Social Security Act §1923(j) as amended by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 §1001(d). Plain English Translation: Implements requirements for reporting of DSH program payments by States and the audit of such reporting.

4. Reason for the DSH Audit Rule • To ensure that the hospital specific DSH limits have not been exceeded. • Hospital specific DSH limit is cost incurred during the year of furnishing hospital services to individuals who either are eligible for Medical Assistance under the State plan or have no health insurance (or other source of third party coverage) for services provided during the year, less any revenues received by or on behalf of these individuals.

5. Federal DSH Eligibility Requirements • Hospital must have Medicaid inpatient day utilization of at least 1%. • Hospital must have two Obstetricians who have agreed to provide non-emergency obstetric services to Medicaid patients (hospital may use any physician in rural areas).

6. Federal DSH Eligibility Requirements • Exceptions to OB requirement: -Hospital was open and did not provide OB services on 12/22/87. -Hospital serves patients primarily under age 18.

7. 42 CFR 447.299(c) Reporting Requirements • Applies to State Fiscal Year 2005 and after • Reports must be created by State Medicaid Agency with the following information for each hospital receiving DSH payments: • Hospital Name • Estimate of Hospital Specific DSH Limit • Medicaid Inpatient Utilization Rate • Low Income Utilization Rate • State Defined DSH Qualification Criteria • IP/OP Medicaid Fee For Service (FFS) Basic Rate Payments

8. 42 CFR 447.299(c) Reporting Requirements • Reports must be created by State Medicaid Agency with the following information for each hospital receiving DSH payments: • IP/OP Medicaid Managed Care Organization Payments • Supplemental/Enhanced Medicaid IP/OP Payments • Total Medicaid IP/OP Payments • Total Cost of Care for Medicaid IP/OP Services. • Total Medicaid Uncompensated Care • Uninsured IP/OP Revenue

9. 42 CFR 447.299(c) Reporting Requirements • Reports must be created by State Medicaid Agency with the following information for each hospital receiving DSH payments: • Total Applicable Section 1011 Payments • Total Cost on IP/OP Care for Uninsured • Total Uninsured IP/OP Uncompensated Care Costs • Total Annual Uncompensated Care Cost • Disproportionate Share Hospital Payments • States must report DSH payments to all hospitals under the authority of the approved Medicaid State Plan.

10. 42 CFR 447.299(c) Reporting Requirements • States must report all 17 fields of data for payments to in-state hospitals. • States can report a minimum of the following fields for out-of-state hospitals: • Hospital Name • Estimate of Hospital Specific DSH Limit • Medicaid Inpatient Utilization Rate • Low Income Utilization Rate • State Defined DSH Qualification Criteria • IP/OP Medicaid Fee For Service (FFS) Basic Rate Payments • Supplemental/Enhanced Medicaid IP/OP Payments • Total Medicaid IP/OP Payments • Disproportionate Share Hospital Payments

11. Requirements for FFP of DSH Payments Under §455.304(a) • The State must submit an independent certified audit to CMS for each completed Medicaid State plan rate year, consistent with the requirements in this subpart, to receive Federal payments under section 1903(a)(1) of the Act based on State expenditures for disproportionate share hospital (DSH) payments for Medicaid State plan rate years subsequent to the date the audit is due. • FFP is not be available in expenditures for DSH payments that are found in the independent certified audit to exceed the hospital-specific eligible uncompensated care cost limit (only for federal fiscal year 2011 and after).

12. Verification Steps Mandated For Certified Audit Under §455.304(d) • Verification Step #1 • Each hospital that qualifies for a DSH payment in the State is allowed to retain that payment so that the payment is available to offset its uncompensated care costs for furnishing inpatient hospital and outpatient hospital services during the Medicaid State plan rate year to Medicaid eligible individuals and individuals with no source of third party coverage for the services in order to reflect the total amount of claimed DSH expenditures.

13. Verification Steps Mandated For Certified Audit Under §455.304(d) • Verification Step #2 • DSH payments made to each qualifying hospital comply with the hospital-specific DSH payment limit. For each audited Medicaid State plan rate year, the DSH payments made in that audited Medicaid State plan rate year must be measured against the actual uncompensated care cost in that same audited Medicaid State plan rate year.

14. Verification Steps Mandated For Certified Audit Under §455.304(d) • Verification Step #3 • Only uncompensated care costs of furnishing inpatient and outpatient hospital services to Medicaid eligible individuals and individuals with no third party coverage for the inpatient and outpatient hospital services they received as described in section 1923(g)(1)(A) of the Act are eligible for inclusion in the calculation of the hospital-specific disproportionate share limit payment limit, as described in section 1923(g)(1)(A) of the Act.

15. Verification Steps Mandated For Certified Audit Under §455.304(d) • Verification Step #4 • For purposes of this hospital-specific limit calculation, any Medicaid payments (including regular Medicaid fee-for-service rate payments, supplemental/enhanced Medicaid payments, and Medicaid managed care organization payments) made to a disproportionate share hospital for furnishing inpatient hospital and outpatient hospital services to Medicaid eligible individuals, which are in excess of the Medicaid incurred costs of such services, are applied against the uncompensated care costs of furnishing inpatient hospital and outpatient hospital services to individuals with no source of third party coverage for such services.

16. Verification Steps Mandated For Certified Audit Under §455.304(d) • Verification Step #5 • Any information and records of all of its inpatient and outpatient hospital service costs under the Medicaid program; claimed expenditures under the Medicaid program; uninsured inpatient and outpatient hospital service costs in determining payment adjustments under this section; and any payments made on behalf of the uninsured from payment adjustments under this section has been separately documented and retained by the State.

17. Verification Steps Mandated For Certified Audit Under §455.304(d) • Verification Step #6 • The information specified in paragraph (d)(5) of this section includes a description of the methodology for calculating each hospital’s payment limit under section 1923(g)(1) of the Act. Included in the description of the methodology, the audit report must specify how the State defines incurred inpatient hospital and outpatient hospital costs for furnishing inpatient hospital and outpatient hospital services to Medicaid eligible individuals and individuals with no source of third party coverage for the inpatient hospital and outpatient hospital services they received.

18. Mandatory Dates for Completing and Filing of Certified Audits • Audits must be completed by September 30th of the third year from the end of the Medicaid State Plan Rate Year under audit (example SFY 2008 must be completed by September 30, 2011) • Completed reports must be submitted to CMS no later than 90 days after completion. • 42 CFR §455.304(b)

19. Transition Period for Implementation of DSH Rule • Results of audits of State Fiscal Years 2005 through 2010 must be considered in calculating estimates of prospective DSH Payments for Medicaid State Plan Year 2011 and thereafter. • Possible settlement of FFP begins with audit results of Medicaid State Plan Year 2011. • No potential of lost FFP for Medicaid State Plan Years 2005 through 2010.

20. What Are Medicaid Eligible Patients? • Medicaid Paid FFS Accounts • Medicaid Paid Managed Care Accounts • Medicaid Eligible Accounts With Third Party Payer Exceeding Medicaid Allowable • Dual Eligible Accounts Where Medicaid May or May Not Pay Deductibles and Coinsurance • Medicaid Eligible Patients With Accounts Not Denied Due To Medical Necessity Or Lack of Benefit

21. Uninsured Patients • CMS’s current policy is very strict • If patient has health insurance, patient is considered insured, even if the insurance does not cover the service patient received. • Uninsured vs. Underinsured

22. DSH Data Collection Form