DSH IMPROVEMENT? ACA § 3133

1. DSH IMPROVEMENT?ACA § 3133 By John R. Hellow Jhellow@Health-Law.Com 310-551-8155

2. Summary of ACA § 3133 • Purpose - Reduce DSH payments and repurpose residual to reflect relative hospital uncompensated care. • Commencing October 1, 2013, traditional DSH paid at 25%, and remainder subject to Three Factors: • Factor One – 75% of estimated DSH payments set aside in pool, • Factor Two – Reduce pool by improvement in insured rates compared to 2010 • Factor Three – Distribute pool based on proportion of an individual hospital’s cost of uncompensated care to all hospitals’ cost of uncompensated care • Statute appears as new 42 U.S.C. § 1395ww(r)

3. FACTOR ONE – ESTIMATE DSH • The aggregate amount of DSH payments that would be made to all hospitals, minus • The amount paid on account of subsection 1395ww(r)(1), 25% of empirically justified DSH payments per MedPAC’s March 2007 Report to Congress at p. 77, equals • An amount to be disbursed to DSH hospitals after adjustment in Factor Two and allocation in Factor Three.

4. FACTOR TWO – REDUCTION OF POOL TO ACCOUNT FOR GROWTH OF INSURED POPULATION • For FFYs 2014 – 17, the pool of funds is multiplied by 1 minus • The percentage change in the uninsured under age 65, between 2013 (as determined by Secretary based on March 2010 estimates from OMB), and • The current year uninsured rate (also from OMB ?) • Minus .1 percent for 2014 and .2 percent for 2015-17.

5. FACTOR TWO Cont’d • 2018 and After the pool of funds is multiplied by 1 minus • The percentage change in the uninsured between 2013 (as determined by Secretary and certified by the actuary) and • The current year uninsured rate (as determined above) • Minus .2 percent for 2018 and thereafter.

6. FACTOR TWO Cont’d • Issues With the Calculation • 2014-17 • How locked is CMS to OMB’s estimate for 2013? • Does the statute require the use of OMB data for the current periods? • CBO estimates that coverage expansion in 2014 and 2015 will lag prior estimates by 25%. • 2018 and thereafter • Estimates now include all age groups including 65+ • Do not rely on OMB data • What data sources will CMS use to capture this information? • Need to insure undocumented aliens are covered in the data.

7. FACTOR THREE – DISTRUBUTING UNCOMPENSATED CARE FUNDS TO PROVIDERS • Distribution of the fund each year is made by establishing a quotient for each DSH hospital that equals • An estimate of the amount of uncompensated care for a period selected by the Secretary for each hospital and • The aggregate uncompensated care for all DSH hospitals for the period as above, and • Secretary may use alternate data this is a better proxy for the cost of treating the uninsured.

8. FACTOR THREE, Cont’d • CMS January 8, 2013 National Call • Solicit Provider Input on Factors Two and Three • Strong Suggestion W/S S-10 data will be used • First new W/S S-10s used in FY 2011 and have not been audited per 12/31/2012 HCRIS Data • Many errors obvious in filed S-10 data that strongly suggests data is unreliable as a basis to determine relative share of uncompensated costs • Many hospitals did not report S-10 data at all, about 5% • 14% had no bad debt data, but 90% of that group reported Medicare bad debt data • Some had a CCR of 1, many had CCRs above .6, a few had more gross charges on S-10 than on C.

9. FACTOR THREE, Cont’d • Unlikely S-10 data will be audited within 2 years of a year subject to the adjustment • CMS is unlikely to allow appeals or audits to impact payment once it has occurred – each change to a single hospitals impacts all hospitals payments. • Will CMS use lagging data, like wage index for this purpose, e.g., audited FFY 2011 W/S S-10 for FFY 2014 payments? Or will it rely on unaudited S-10 data?

10. FACTOR THREE, Cont’d • Problems with W/S S-10 • Definitional problems • Uninsured vs. Charity – Non means tested uninsured discounts likely not included in charity • Charity must be determined during the cost reporting period • Medicaid and other indigent program non-covered charges – must be addressed in charity policy or excluded • Non-Medicaid gov’t indigent care program patients likely should be excluded, but unclear. • Bad debt timing - written off or expected to be written off on balances owed by patients delivered during the cost reporting period.Accrual based account for bad debt should govern.

11. FACTOR THREE, Cont’d • Converting Charges to Costs • Problem particularly acute with bad debt • Hospitals may be grossing up charges to address copayment shortfalls – should a hospital be allowed to claim a cost for a copayment that exceeds the copayment.

12. Status of DSH Litigation • Allina Health Sys. v. Sebelius (D.D.C. 11/15/12) • The Allina decision invalidated the CMS regulation adding Medicare Advantage days to the Medicare Fraction of the DSH computation. • Allina may yield additional DSH reimbursement, as well as cost savings on outpatient drugs through 340B Program eligibility when those Medicare Advantage days are removed from the DSH calculation.  • Implication from Allina is that Part C dual-eligibles should be included in the Medicaid fraction. • Hospitals must act to preserve their rights to additional DSH reimbursement and with respect to 340B eligibility as CMS appeals the Allina decision.

13. Status of DSH Litigation, Cont’d • Sebelius v. Auburn Regional Medical Center, (S. Ct. 1/22/13) • Supreme Court decides 9-0 no equitable tolling beyond 3 year good cause for late appeal regulation for government fraudin DSH/SSI cases. • Recognizes federal courts can review PRRB refusal to grant good cause for late appeals. • Sotomayor concurring opinion suggests good cause must include government misfeasance which leads to appeal delay.

14. Here Come the NPRs! • After a freeze on the issuance of NPRs for DSH hospitals since 2006, even after the Allina decision, CMS has instructed MACs to issue NPRs with Part C days in the Medicare Fraction. • These new NPRs are accompanied by a reopening notice on DSH.