Take Two:

FY 2018 Hospital Inpatient PPS Proposed Rule and Uncompensated Care


On April 14, CMS released the FY 2018 Hospital Inpatient PPS Proposed Rule. Contained in the 1,800+ pages of the rule is CMS’s latest attempt to incorporate Worksheet S-10 data into the Factor 3 calculation formula for uncompensated care payments.

Discussing or attempting to integrate Worksheet S-10 into the uncompensated care calculation formula has become an annual event for CMS, appearing in the FY 2016 IPPS Final Rule and both the Proposed Rule and Final Rule for FY 2017.

The FY 2017 Proposed Rule, released in April 2016, was the first to include a Factor 3 calculation utilizing Worksheet S-10. This formula would have introduced Worksheet S-10 in FY 2018, using it in conjunction with low-income insured patient days for two years before transitioning it to be the sole source for the calculation in FY 2020.

CMS seemed to signal that this new formula was on track to be included in the FY 2017 Final Rule when it issued Change Request 9648 on July 15, 2016. This notice stated that all revisions to FY 2014 Worksheet S-10 data needed to be submitted to MACs by September 30, 2016. As FY 2014 was the initial year to be used in the FY 2018 Factor 3 calculation formula, it appeared that inclusion of the new formula in the FY 2017 Final Rule was inevitable.

However, CMS eliminated the proposed payment formula in the FY 2017 Final Rule, citing ongoing concerns with Worksheet S-10 data submitted by hospitals and stating that it needed to “institute certain additional quality control and data improvement measures to the Worksheet S-10 instructions and data prior to moving forward with the incorporation of Worksheet S-10 data into the calculation of Factor 3.”

While there are some differences between the two, the formula proposed in the FY 2018 Proposed Rule is similar to the one presented in the FY 2017 Proposed Rule, with the schedule for phasing in the use of Worksheet S-10 data remaining the same:

The implications of the potential shift in the Factor 3 calculation formula are heightened by another proposed revision to the uncompensated care formula. CMS is proposing to change the data source used to estimate the percent change in the uninsurance rate that is used in the Factor 2 calculation formula. CMS currently use data from the Congressional Budget Office, but is proposing to switch to data from the National Health Expenditure Accounts. This proposed change is expected to increase overall Medicare DSH funding by $1 billion in FY 2018 compared to FY 2017, with that addition going to the uncompensated care portion of the DSH payments.

The key questions for hospitals reviewing the FY 2018 Proposed Rule are whether the proposed formula will actually be adopted for 2018 and if so, what needs to be done to prepare for this change?

Will the Proposed Formula Be Adopted for FY 2018?

This question is a difficult one to answer given the abrupt about-face done by CMS in 2016. However, the growing confidence in Worksheet S-10 data expressed by CMS in the FY 2018 Proposed Rule appears to portend that they are ready to move forward.

The primary concern with Worksheet S-10 has been the accuracy and consistency of the data supplied by hospitals. While CMS noted that many commenters of the FY 2017 Proposed Rule were dissatisfied with the use of low-income insured days as the proxy for Factor 3, these commenters were also concerned with Worksheet S-10:

“Moreover, due to the concerns that continue to be expressed by a large majority of commenters regarding the accuracy and consistency of the data reported on the Worksheet S-10 in its current form, we continue to believe that these alternative data on utilization for insured low-income patients, which are currently reported on the Medicare cost report, remain a better proxy for the amount of uncompensated care provided by hospitals in FY 2017. However, we remain convinced that Worksheet S-10 can ultimately serve as an appropriate source of more direct data regarding uncompensated care costs for purposes of determining Factor 3.”

In the FY 2018 Proposed Rule, CMS seemingly has reconciled these concerns, specifically citing two pieces of data that allows them to state “we have reached a tipping point with respect to the use of Worksheet S-10 data.”

  • CMS cited updated analysis comparing Worksheet S-10 data to uncompensated care cost data submitted by hospitals on IRS Form 990. The previous version of the analysis showed a “strong and converging correlation between the amounts for Factor 3 derived from IRS Form 990 and Worksheet S-10 data suggesting that Worksheet S-10 uncompensated care data are becoming more stable over time.” The updated analysis shows that the correlation between these data sources has continued to grow.
  • CMS noted that following the issuance of Change Request 9648, over one quarter of hospitals that receive uncompensated care payments updated their Worksheet S-10 data. CMS noted that the high number of hospitals updating data means that the overall data to be used for the new formula is much more reliable.

In addition to its comments regarding Worksheet S-10 data, other information included in the FY 2018 Proposed Rule — revisions to the payment formula, updating reporting instructions, and issuing new standardized instructions to MACs regarding when and how often a hospital’s Worksheet S-10 should be reviewed — all point toward CMS’s adopting the new formula for FY 2018.

CMS has consistently voiced its desire and intent to incorporate Worksheet S-10 as the proxy for Factor 3, and its newfound confidence that a “tipping point” has been reached regarding the accuracy and consistency of this data signals that it is ready to move forward with the new formula.

What Does This Mean for Hospitals?

The implications of the FY 2018 Proposed Rule are significant for hospitals receiving Medicare DSH payments. The adoption of Worksheet S-10 as the source for uncompensated care costs makes it imperative to ensure that Worksheet S-10 data for the years being contemplated for the formula is accurate and that documentation is available in the event of an audit. Failure to complete either of these tasks could place uncompensated care payments at risk.

The proposed implementation of Worksheet S-10 data starting with FY 2014, means that hospitals should review Worksheet S-10 data for FYs 2015 and 2016 while also focusing on improving their processes for FY 2017 forward. An additional consideration for hospitals is that in 2016, CMS unexpectedly instituted a deadline for updating FY 2014 Worksheet S-10s. The deadline was set less than three months from when it was announced. Hospitals should keep that in mind when determining their time frame for updating Worksheet S-10s for FYs 2015 and 2016.

How Can Healthcare Payment Specialists Help You?

With deep expertise in complex and data-intensive cost report issues, such as Medicare Bad Debt and Medicare DSH, Healthcare Payment Specialists (HPS) is ideally positioned to work with hospitals to deliver Worksheet S-10s that are complete and accurate. Our Uncompensated Care Analytics solution provides hospitals with the core data points needed to complete Worksheet S-10, detailed documentation to expedite the audit process, an analysis of the impact that your Worksheet S-10 results will have on uncompensated care payments and benchmarking against peer hospitals.

Click here to contact us to learn more about how HPS can help your hospital.

Healthcare Payment Specialists

Healthcare Payment Specialists

Founded in 2002, Healthcare Payment Specialists (HPS) provides technology enabled solutions for health care eligibility, government reimbursement and compliance to hospitals and healthcare systems across the country. Using its STINGRAY software platform, HPS delivers solutions on a software-as-a-service (SaaS) basis or through outsourced service engagements.
Healthcare Payment Specialists