Medicare DSH Reimbursement Summary:

Section 3133 of the Patient Protection & Affordable Care Act modifies the methodology for computing the Medicare DSH payment adjustment beginning in FY 2014. The Centers for Medicare & Medicaid Services (CMS) final rules implementing such changes will be published in the Federal Register on August 19, 2013, but a display copy of these final rules was posted on CMS’s website on August 2, 2013 (FY 2014 IPPS Final Rule Home Page).

While the ACA calls for a change in the methodology of computing Medicare DSH reimbursement, there are no changes in the regulations in which determine whether a hospital qualifies for Medicare DSH reimbursement. Beginning for discharges on or after October 1, 2013, hospitals that qualify for Medicare DSH will still receive DSH reimbursement, computed in 2 parts as follows.

1. Empirically Justified DSH Payment =

  • 25% of the amount a hospital previously would have received under the original statutory formula for Medicare DSH payments.

2. Uncompensated Care = Factor 1 x Factor 2 x Factor 3 (Factors defined below)

  • The Uncompensated Care portion of the new Medicare DSH formula is paid prospectively based on a published estimated per claim amount by hospital based on the following factors, so this portion of the Medicare DSH calculation will not have a cost report reconciliation based on current year utilization.
  • Factor 1=

– 75% of the total aggregate Medicare DSH payments (as estimated by the CMS) using the original statutory formula for Medicare DSH payments.

– The FY 2014 final rule estimate for total aggregate Medicare DSH payments under the original formula (per the Office of the Actuary) is $12.772 Billion, so the FY 2014 Factor 1 = $12.772B x 75% = $9.579 Billion.

  • Factor 2 =

– FY’s 2014 – 2017; 1 minus the % change in the % of individuals under the age of 65 who are uninsured, as determined by comparing the % of such individuals who are uninsured in 2013 as calculated by the Congressional Budget Office (CBO).
– FY’s 2014; the above Factor 2 formula is reduced by 0.1%.
– FY’s 2015 – 2017; the above Factor 2 formula is reduced by 0.2%
– FY’s 2018 & beyond; 1 minus the % change in the % of individuals under the age of 65   who are uninsured, as estimated based on data from the Census Bureau or othe r       sources the CMS determines appropriate, and certified by the Chief Actuary of the CMS, thus providing greater flexibility in the choice of data sources used.
– FY’s 2018 & 2019, the above Factor 2 formula is reduced by 0.2%
– Percent of individuals without insurance for 2013 is 18% per the CBO
– Estimated Final Rule % of individuals without insurance for FY 2014 is 17% per the CBO
– FY 2014 Factor 2 = |1-[(0.18-0.17)/0.18] | – 0.001 = 0.943

  •  Factor 3 =

– The % representing the quotient of the amount of uncompensated care for such hospital & the aggregate amount of uncompensated care for all hospitals.
– Uncompensated care for hospitals in this calculation is based on Medicaid & Medicare SSI patient days (not including DPU days), so Factor 3 = a hospital’s total Medicaid & Medicare SSI days divided by all qualifying DSH hospitals’ total Medicaid & Medicare SSI days.
– An excel spreadsheet labeled “Medicare DSH Supplemental Data File” is posted on the CMS’s website in the FY 2014 IPPS Final Rule Data Files section. This file lists each hospital’s Factor 3, Total Uncompensated Care Amount for FY 2014 & the Estimated Uncompensated Care Per-Claim Amount.
– Factor 3 utilizes FY 2011 Medicare SSI and Medicaid days as the basis for its calculation for FY 2014 Uncompensated Care payments, so significant change in Medicare SSI & Medicaid utilization will not affect these payments for up to three years after the fact.