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, Senior Manager, Baltimore

3. Agenda Items • What is the DSH Rule? • Requirements of the State under DSH audit rule • Requirements of hospitals under DSH audit rule • Requirements of auditors under DSH audit rule • Documentation needed from the hospitals • Overview of process to review uninsured data • Discussion on use of cost reports in the process • Questions and concerns from hospitals

4. What is the DSH Rule?

5. 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.

6. Reason for the DSH Audit Rule • To ensure that the hospital specific DSH limits have not been exceeded. • Hospital specific DSH limit is costs incurred during the year of furnishing hospital services by the hospital 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.

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.

12. Documentation States Must Use Under §455.304(c) • Approved Medicaid State Plan for the Medicaid State Plan Rate Year Under Audit • Payment and Utilization Information from the State’s Medicaid Management Information System • Medicare 2552-96 Cost Reports Applicable to the Medicaid State Plan Rate Year Under Audit (Alternate Cost Reports May Be Used If Approved in Medicaid State Plan) • Audited Hospital Financial Statements and Hospital Accounting Records

13. 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.

14. 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.

15. 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.

16. 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.

17. 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.

18. 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.

19. Mandatory Dates for Completing and Filing of Certified Audits • State Fiscal Years 2005 and 2006 must be completed by September 30, 2009 and filed by December 31, 2009 (However, CMS has suspended enforcement until December 31, 2010) • State Fiscal Years 2007 and after must be completed by September 30th of the third year from the end of the Medicaid State Plan Rate Year under audit (example SFY 2007 must be completed by September 30, 2010) • Completed reports must be submitted to CMS no later than 90 days after completion. • 42 CFR §455.304(b)

20. 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. • 42 CFR §455.304(e)

21. What is Medicaid Eligible?

22. 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

23. Requirements of the State under DSH audit rule

24. Responsibilities of the State(General DSH Auditing and Reporting Protocol) • States are responsible for obtaining the independent audit on an annual basis • Providing the auditor and the DSH hospitals subject to audit with instructions on the data elements necessary to insure compliance • Provide DSH hospitals and auditor with fee for service (FFS) Medicaid IP and OP hospital days and charges based on Medicaid Management Information System (MMIS) data for the cost reporting period(s) covering the Medicaid State plan rate year under audit.

25. Responsibilities of the State(General DSH Auditing and Reporting Protocol) • Provide DSH hospitals and auditor with all information related to IP/OP hospital regular Medicaid rate payments (including all rate add-ons), all Medicaid supplemental and enhanced payments, and all DSH payments made to each DSH hospital for the cost reporting year (s) covering the State plan rate year. • Provide auditor with methodologies utilized by the State to determine DSH eligible hospitals under the Medicaid State plan (LIUR, MIUR, Other) and payment methodologies used to generate DSH payments under the approved Medicaid State plan.

26. Responsibilities of the State(General DSH Auditing and Reporting Protocol) • Provide auditor with hospital-generated IP/OP hospital cost report information; Medicaid managed care IP/OP hospital days, charges, and payment information; and uninsured IP/OP hospital days, charges, and payment information received from DSH hospitals. • Report the findings of the audit to CMS within 90 days of receiving audit.

27. Responsibilities of the State(General DSH Auditing and Reporting Protocol) • Use audit findings for rate year 2005 – 2010 to prospectively adjust DSH payments beginning with Medicaid State plan rate year 2011. • Use audit findings for rate year 2011 to determine over/underpayments (final report available in 2014).

28. Requirements of the Hospital under DSH audit rule

29. Responsibilities of the Hospital(General DSH Auditing and Reporting Protocol) • Use the Medicare 2552-96 hospital cost report to determine cost center specific routine per diems and ancillary ratios of cost to charges (RCC) based on Medicare Cost Principles (Medicare cost allocation process). • Utilize MMIS data provided by the state for Medicaid FFS IP/OP hospital ancillary charges and Medicaid FFS IP hospital routine days.

30. Responsibilities of the Hospital(General DSH Auditing and Reporting Protocol) • Utilize hospital financial statements and other auditable hospital accounting records as source for IP/OP hospital Medicaid managed care ancillary charges and routine days and IP/OP hospital uninsured ancillary charges and routine days (individuals with no source of third party coverage). • Utilize revenue information from financial statements and other auditable hospital accounting records to identify payments made by or on behalf of patients with no source of third party coverage for IP/OP hospital services.

31. Responsibilities of the Hospital(General DSH Auditing and Reporting Protocol) • Utilize revenue information from financial statements and other auditable hospital accounting records to identify Medicaid payments not directly paid by the State in which the hospital is located, including all IP/OP Title XIX payments from other States (regular, supplemental and enhanced and DSH), and all payments from other non-State sources for Medicaid IP/OP hospital services.

32. Responsibilities of the Hospital(General DSH Auditing and Reporting Protocol) • Provide state with hospital specific cost and revenue data, including backup documentation, so that independent auditor may utilize in developing audit report. Continue to provide state information already required to determine DSH qualifications (LIUR, MIUR, other).

33. Requirements of the Auditors under DSH audit rule

34. Responsibilities of the Auditors(General DSH Auditing and Reporting Protocol) • Review State’s methodology for estimating hospital’s OBRA 1993 hospital-specific DSH limit and the State’s DSH payment methodologies in the approved Medicaid State plan for the State plan rate year under audit. • Review state’s DSH audit protocol to ensure consistency with IP/OP Medicaid reimbursable services in the approved Medicaid State plan. Review DSH audit protocol to ensure that only costs eligible for DSH payments are included in the development of the hospital specific DSH limit.

35. Responsibilities of the Auditors(General DSH Auditing and Reporting Protocol) • Compile hospital specific IP/OP cost report data and IP/OP revenue data to measure hospital specific DSH limit in auditable year. In determining this limit, the auditor must measure both components of the hospital specific DSH limit. To determine the existence of a Medicaid shortfall, Medicaid IP/OP hospital costs (including Medicaid managed care costs) must be measured against Medicaid IP/OP revenue received for such services in the audited State Plan rate year (including regular Medicaid rate payments, add-ons, supplemental and enhanced payments and Medicaid managed care revenues). Costs associated with patients with no source of third party coverage must be reduced by applicable revenues and added to any Medicaid shortfall to determine total eligible DSH costs.

36. Responsibilities of the Auditors(General DSH Auditing and Reporting Protocol) • Compile total DSH payments made in auditable year to each qualifying hospital (including DSH payments received by the hospitals from other States). • Compare hospital specific DSH costs limits against hospital specific total DSH payments in the audited Medicaid State plan rate year. Summarize findings identifying any overpayments/ underpayments to particular hospitals.

37. Financial Outcomes of the Audits • CMS will not require States to payback FFP for DSH payments over the hospital specific limits for State plan years 2005 through 2010. • Potential for FFP settlements begin with State plan year 2011. • State must consider results of the audits in calculating prospective DSH payments for State plan years 2011 and after.

38. Documentation needed from the hospitals

39. Federal DSH Qualification Criteria • Hospital must have Medicaid Day Utilization of at least 1%. • Obstetric Requirement: • Hospital must have at least 2 obstetricians with staff privileges who have agreed to provide non-emergency obstetric services to Medicaid patients. • Rural hospitals may use any physician with staff privileges to perform non-emergency obstetric services.

40. Federal DSH Qualification Criteria • The OB requirement does not apply to: • Hospitals that did not offer non-emergency obstetric services as of December 22, 1987 • Hospitals that predominately serve patients under 18

41. Dates of Services for Uninsured and Medicaid Activity • Discharge dates occurring during the Medicaid State Plan rate year for inpatient services • Dates of service occurring during Medicaid State Plan rate year for outpatient services • For any hospital fiscal year not corresponding to Medicaid State Plan rate year will, multiple cost reports and financial information will have to be used.

42. CMS Form 2552-96 Cost Report • Notice of Program Reimbursement (NPR) and settled CMS Form 2552-96 from Medicare Fiscal Intermediary if NPR has been issued. • As-Filed CMS Form 2552-96 if Medicare have not issued Notice of Program Reimbursement.

43. Standard Report For Uninsured Patients • Form will come with instructions and includes: • Account Number • Type of Bill • Patient Name • Dates of Service (Admit & Discharge Date for I/P and Date of Service for O/P) • Primary Payer Code • Secondary Payer Code • UB04 Hospital Charges • CMS 1500 Professional Charges • Total Charges

44. Standard Report For Uninsured Patients • Separate Report for Inpatient and Outpatient • Attach detail schedule with uninsured account number, and days and charges by revenue code • Attach schedule summarizing days and charges by cost center

45. Other Documents Needed From Hospitals • Working Trial Balance • Audit Financial Statements • Expenses and Revenue Mapping to Worksheet A and Worksheet C • Medicaid Crosswalk of Inpatient Routine Days and Charges and Ancillary Services Charges • Medicaid Crosswalk of Outpatient Ancillary Services • Self-Pay Crosswalk of Inpatient Routine Days and Charges and Ancillary Services Charges • Self-Pay Crosswalk of Outpatient Ancillary Services

46. Other Documents Needed From Hospitals • Detail listing of uninsured payments by account (will come with instructions): • Account Number • Patient Name • Admission and Discharge Dates (IP) • Dates of Service (OP) • Payment Date • Payment Amount

47. Other Documents Needed From Hospitals • Provider prepared detailed log by revenue code for each patient with charges, days and payments for discharge dates (I/P) and dates of service (O/P) for the cost reporting period that is within the MSP rate year for Medicare/Medicaid (or other payer) Dual Eligible patients.

48. Other Documents Needed From Hospitals • Provider prepared detailed log by revenue code for each patient with charges, days and payments for discharge dates (I/P) and dates of service (O/P) for the cost reporting period that is within the MSP rate year for Out of State Medicaid Agencies activity. • Detail and Summary, if possible, reports from the various Out of State Medicaid Agencies detailing patient specific activity including days, charges by revenue code and payments for discharge dates (I/P) and dates of service (O/P) for the cost reporting period that is within the MSP rate year.

49. Other Documents Needed From Hospitals • Provider prepared detailed log by revenue code for each patient with charges, days and payments for discharge dates (I/P) and dates of service (O/P) for the cost reporting period that is within the MSP rate year for Medicaid Managed Care Organizations (if applicable). • Detail and Summary, if possible, reports from the various Medicaid Managed Care Organizations detailing patient specific activity including days, charges by revenue code and payments for discharge dates (I/P) and dates of service (O/P) for the cost reporting period that is within the MSP rate year.

50. Other Documents Needed From Hospitals • Documentation on Supplemental/Enhanced Medicaid payments (UPL, Supplemental payments, cost report settlements) and DSH payments that provider receives from Out of State Medicaid Agencies for the cost report period. • Documentation on Supplemental/Enhanced Medicaid payments and DSH payments that provider receives from Medicaid Managed Care Organizations for the cost report period. • Documentation from provider’s records detailing payment of intergovernmental transfer, if applicable.