Corporate Compliance

Note from the instructor: Qualifying for and Calculating the Disproportionate Share Hospital (DSH) adjustment for FY 2015

Medicare Insider, November 18, 2014

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 This week’s note from the instructor is written by Judith L. Kares, JD,regulatory specialist for HCPro.  

 
In this week’s note we will discuss one more potential adjustment to the IPPS payment for inpatient hospital discharges during FY 2015. Most inpatient short-term acute-care hospitals are reimbursed for inpatient stays based upon the IPPS. Under the IPPS, hospitals generally receive a single payment for all services provided to a particular patient during that inpatient stay, based upon the DRG to which the stay is assigned. The DRG payment is composed of two portions: a DRG operating payment and a DRG capital payment. 
 
In recent years, CMS has implemented a number of programs that require an adjustment to the DRG operating and/or capital payments. In today’s issue we will focus on the Medicare DSH adjustment, which originally became effective for discharges occurring on or after May 1, 1986. Significant changes were made to this program with respect to discharges on or after the beginning of FY 2014. I recently researched these changes in preparation for teaching a custom MBC-H class and thought it would be beneficial to review them with the larger hospital community. 
 
Scope and purpose of DSH adjustments
 
DSH adjustments are designed to compensate hospitals serving a disproportionate share of low-income inpatients. Qualifying hospitals may receive an adjustment (an increase) in the DRG payment they receive for each IPPS case. There are separate DSH adjustments for the operating and capital portions of the DRG payment. These DSH adjustments are generally based on the percentage of days attributable to low income individuals (the “DSH Percentage”) and the size and location (urban versus rural) of the hospital.
 
 There are two categories of patients considered to be low income for DSH purposes:
  • Medicare Part A beneficiaries who are eligible for Supplemental Security Income (SSI); and
  • Medicaid patients without Medicare Part A coverage.
 
A Medicare beneficiary enrolled in a Medicare Advantage plan is included in the calculation of the Medicare Part A fraction. A patient without Medicare Part A coverage is included in the low- income count so long as the patient was eligible for Medicaid inpatient services, regardless of whether Medicaid actually covered or paid for the patient’s hospitalization. CMS is required to assist hospitals in obtaining relevant data to calculate the number of low-income Medicare Part A/SSI patients. The hospital, however, has the primary burden of furnishing data adequate to prove eligibility for each Medicaid inpatient day claimed. 
 
Determining the hospital’s qualification for the DSH adjustment
 
There are two methods for a hospital to qualify for the Medicare DSH adjustment. The primary method is for a hospital to qualify based on a statutory formula used to determine the hospital’s DSH Percentage. The DSH Percentage is equal to the sum of the percentage of Medicare inpatient days attributable to patients eligible for both Medicare Part A and SSI, and the percentage of total inpatient days attributable to patients eligible for Medicaid but not Medicare Part A.  The DSH Percentage is calculated using the following formula:
 
             Medicare SSI Days                     Medicaid, Non-Medicare Days
DSH%   =   __________________    +     _______________________
 
            Total Medicare Part A Days         Total Patient Days (All Payers)

 

 
The alternate special exception method (the “Special Exception Method”) applies to large urban hospitals (100 or more beds) able to demonstrate that more than 30% of their total net inpatient care revenue comes from State and local government programs for indigent care (other than Medicare or Medicaid).
 
A hospital qualifies for a DSH operating adjustment if the hospital has a DSH percentage over 15% or if it satisfies the requirements of the Special Exception Method. Only urban hospitals with 100 or more beds potentially qualify for a DSH capital adjustment. Urban hospitals with 100 or more beds will qualify for a DSH capital adjustment if the hospital serves any low income patients or if it satisfies the requirements of the Special Exception Method.
           
Determining the DSH adjustment factors for discharges prior to FY 2014
 
If a hospital qualifies for a DSH operating adjustment, the applicable DSH operating adjustment factor depends on the hospital’s DSH percentage. 
 
  • If the hospital’s DSH percentage is equal to or greater than 15% but less than or equal to 20.2%, the following formula applies:
                                                    2.5% + (65% x (Hospital’s DSH% - 15%))
 
  • If the hospital’s DSH percentage is greater than 20.2%, the following formula applies:
                                       5.88% + (82.5% x (Hospital’s DSH% - 20.2%))
 
There are limits applied to the DSH operating adjustment factor for certain categories of hospitals. 
 
If a hospital qualifies for a DSH capital adjustment, for hospitals not subject to the Special Exception Method, the DSH capital adjustment factor is determined based on the following formula:
 
                        Adjustment Factor = Antilog of 1(0.2025 x DSH%) - 1
   (Note: The antilog of 1 is approximately 2.718)
 
For hospitals subject to the Special Exception Method, the DSH capital adjustment factor is the same as the hospital’s DSH operating adjustment factor.
 
Determining the DSH adjustment factors for discharges on and after October 1, 2013
 
Effective for discharges on or after October 1, 2013, the amounts otherwise payable to a hospital under the above-referenced DSH operating adjustment rules are reduced by 75%. For FY 2014 and subsequent fiscal years, the remainder, equal to 75% of what otherwise would have been paid as DSH operating adjustment payments, will become available for uncompensated care payments, subject to certain reductions for changes in the percentage of uninsured individuals. Each Medicare DSH hospital will receive an additional uncompensated care payment based on its share of insured low income days as reported by all Medicare DSH hospitals. This additional amount will be equal to the product of the following three factors: 
 
  • Factor 1: 75% of the estimated DSH payments that would otherwise be made under the old DSH operating adjustment methodology;
  • Factor 2: 1 minus the percent change in the percent of individuals under the age of 65 who are uninsured (minus 0.1 percentage points for FY 2014, and minus 0.2 percentage points for each of FYs 2015 through 2017); and
  • Factor 3: A hospital’s amount of uncompensated care relative to the amount of uncompensated care for all DSH hospitals expressed as a percentage.
 
Applying the DSH adjustment factors
 
The DSH operating and/or capital adjustment factors are applied to the respective DRG operating and/or capital payments after any applicable Hospital Readmission Reduction Program or Hospital Value-based Purchasing Program adjustments, but before any applicable Hospital Acquired-condition Reduction Program adjustment or outlier payment calculation.
 
Source authorities
 
More information on DSH adjustments can be found in the following principal source authorities:
 
FY 2015 IPPS Final Rule, 79 Fed. Reg. 49854–50449 
FY 2014 IPPS Final Rule, 78 Fed. Reg. 50496–51040
42 CFR § 412.106
42 CFR § 412.320 
Medicare Claims Processing Manual, Chapter 3 § 20.3

 



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