Disproportionate Share (DSH) Reimbursement

Hospitals that serve a disproportionate share of low-income patients have higher Medicare costs per case. This conclusion was supported by data and analysis from the Congressional Budget Office, the Prospective Payment Assessment Commission, the Health Care Financing Administration, the American Hospital Association and the Urban Institute.

These hospitals generally qualify for a payment adjustment to their Medicare DRG rate. The Regulations and rules associated with determining DSH payment adjustments have been subjected to a great deal of litigation and change. Quality Reimbursement Services (QRS) has participated in this litigation, specializes in Medicare DSH reimbursement, is familiar with the entire history of the DSH program, and its past and pending changes. QRS protects client hospitals by appealing aspects of the payment adjustment formula that are subject to change.

The DSH payment adjustment focuses on two low-income ratios – the Medicare SSI fraction, and the Medicaid fraction. The Medicare SSI fraction has been referred to as CMS’s “black box” and QRS is unique in being the first reimbursement consulting firm to successfully challenge a “black box” ratio. QRS continues to be very successful at optimizing the Medicaid fraction as well.

Since FFY 2014 DSH payment adjustments have been broken into two parts: Part I being 25% of the traditional DSH payment adjustment, and Part II – which is 75% of the hospitals DSH payment adjustment, and is a fraction of a national Uncompensated Care Pool. Worksheet S-10 is utilized in determining the hospitals share of this national pool.

Given the importance of Uncompensated Care and the relative “newness” of this DSH provision, QRS has cultivated expertise in this area with a team that specializes in S-10 work. In a situation that pits hospitals against one another for shares of the Uncompensated Care Pool – a little expertise goes a long way, often adding hundreds of thousands of dollars to the hospitals share of the pool.

Crossover Bad Debt

Medicare Bad Debt is derived from deductibles and coinsurance amounts “uncollectible” from patients who are eligible for both Medicare and Medicaid coverage (i.e. dual eligible). Dual eligible beneficiaries are automatically determined “indigent”. But Non-Medicaid indigence must be determined by the provider (not the patient). So the provider must take into account the total resources available to the beneficiary that could be converted to cash and unnecessary to the patient’s daily living. And the patient’s file should have all back-up information to substantiate the determination.

The provider must also make reasonable collection efforts consistent with the provider’s Collection Policy. A Medicare Bad Debt filing must also include (1) a descriptions of how the “indigent” determinations was made (Medicaid/Non-Medicaid); (2) copies of all related billing for the “indigent,” and (3) a “Bad Debt Log” that includes:

  • Patient’s name
  • HIC number
  • Date of service
  • How the patient was deemed indigent
  • Date the first bill was sent
  • Date the bad debt was written off
  • Remittance advice date
  • Deductible and coinsurance amount
  • Total Medicare Bad Debt for the cost report
  • Partial Payments

What’s New: CMS to begin enforcing new accounting classification rule for Crossover Bad Debt.

Per a MLN (Medicare Learning Network) article published last April by CMS, for FYE’s beginning on or after October 1, 2019, providers will be denied reimbursement for their crossover bad debts unless the underlying balances have been written off to a bad debt expense account. The industry standard has been to log crossover balances to contractual allowance accounts, in accordance with Generally Accepted Accounting Principles (GAAP) regarding revenue recognition. The new “interpretation” immediately clashes with accounting best practices.

Providers are contractually bound by the Medicaid provider agreements in their states to accept amounts paid by the state plan as payment in full, even if the state pays nothing. Since there is then no legal ability to recover the contractual allowance from the patient, providers consider them “worthless” and claim them as Crossover Bad Debt pursuant to Section 322 of the Provider Reimbursement Manual (PRM). Section 322 provides clarity that these are contractual allowances that may be claimed as Crossover Bad Debts on the cost report.

According to one Medicare Administrative Contractor (MAC) there is a revision to the PRM coming shortly that will provide further guidance on this issue. For providers with FY’s beginning 10/1/19 they have a decision to make very shortly. For many providers Crossover Bad Debts are worth millions of dollars in reimbursement and the ramifications of this new “interpretation” can run into the millions of dollars. A convenient decision may be to revise your “Crossover Bad Debt” policy to have crossover bad debts written off, using a code with a clear description that it is a bad debt i.e. Crossover Bad Debt IP, OP, etc. Without further guidance from CMS it is unclear whether that type of account would need to be rolled up into Bad Debts for financial reporting purposes. If that is the case, providers will have to have a serious discussion with their financial auditors regarding presentation to avoid potential denied reimbursement.

Ask Us About Medicare Reimbursement