On April 22, 2015, CMS issued Ruling 1498-R2 (the Revised Ruling), a modification of the prior ruling governing Medicare Disproportionate Share Hospital (DSH) payment adjustments.  The Revised Ruling addresses the recalculation of the Supplemental Security Income (SSI) fraction of the Medicare DSH payment adjustment for cost reports on appeal involving patient discharges prior to October 1, 2004.  According to CMS, “the purpose of this amendment is to make clear that in light of the D.C. Circuit Court’s decision in Catholic Health Initiatives v. Sebelius, 718 F.3d 914 (D.C. Cir. 2013), we are allowing providers to elect whether to receive suitably revised Medicare-SSI fractions on the basis of ‘covered days’ or ‘total days’ for Federal fiscal year 2004 and earlier, or for hospital-specific cost reporting periods, for those patient discharges occurring before October 1, 2004.” See Revised Ruling 1498-R2 at 8.

In the original CMS Ruling 1498-R, issued April 28, 2010 (the Original Ruling), CMS acquiesced in hospital cost report appeals that raised three specific DSH issues: (1) allegations that providers’ Medicare-SSI fractions did not include all SSI entitled beneficiaries because CMS’s matching process did not include the best available data; (2) allegations that the agency wrongly excluded non-covered inpatient days for patients entitled to Medicare Part A (otherwise known as “dual beneficiary exhausted days”); and (3) challenges to the agency’s exclusion of labor/delivery room inpatient days from the Medicaid fraction of the DSH calculation.  In the Original Ruling, CMS stated that it would grant relief in these appeals by recalculating SSI fractions to include a suitable match to capture all inpatients entitled to SSI.  CMS also stated that it would calculate the new SSI fractions based upon its interpretation of the SSI fraction set forth in the FY 2005 IPPS Final Rule (69 Fed. Reg. 48916, at 49098).  Under that interpretation, the SSI fraction is calculated using “total days,” in which the numerator is the number of SSI-eligible inpatient days for individuals “entitled to benefits under Part A,” and the denominator is the total number of inpatient days for individuals “entitled” to Part A benefits.  SeeRevised Ruling 1498-R2 at 4-5.  In other words, in the Original Ruling, CMS elected to count the inpatient days of dual eligible beneficiaries whose Medicare Part A benefits had been exhausted (i.e., not covered) in the SSI fraction.  This interpretation excluded the days from being counted in the Medicaid fraction which is generally more favorable to providers. 

As a result of the D.C. Circuit’s decision in Catholic Health Initiatives, stating thatthe FY 2005 IPPS Final Rule regarding the Medicare-SSI fraction “did effect a change with respect to whether Medicare-exhausted days could be included in the Medicare fraction,” CMS has revised the Original Ruling to allow hospitals to exercise an election. See Revised Ruling 1498-R2 at 6 (citing Catholic Health Initiatives, 718 F.3d at 921 n.5).  Hospitals may elect to either: (1) include inpatient days of a person entitled to Medicare Part A in the numerator and the denominator of the Medicare-SSI fraction, even if the patient’s Part A benefits were exhausted or otherwise not covered (or, calculation based on “total days”); or (2) where the patient’s Part A benefits were exhausted or otherwise not covered, exclude such days from both the numerator and denominator of the Medicare-SSI fraction (or, calculation based on “covered days”).

CMS plans to issue additional instructions and guidance regarding revised Medicare-SSI fractions and this amendment in the near future.