Under section 3133 of the Affordable Care Act, as amended, Medicare DSH payments to qualifying hospitals for discharges in FY 2014 will be reduced to 25 percent (the “empirically justified” portion) of the amount that the hospitals otherwise would have received under the current statutory formula.  The remaining 75 percent of what otherwise would have been paid as Medicare DSH payments will be reduced to reflect the decline in the under-65 uninsured population since 2013, and the remainder will form a “pool” from which additional uncompensated care payments are made to eligible hospitals.

CMS has finalized its proposal that only those hospitals that receive “empirically justified” DSH payments are eligible to receive an additional payment for uncompensated care.  Uncompensated care payments will be paid on a periodic basis rather than on a per-discharge basis.  CMS will determine eligibility for interim uncompensated care payments on the basis of each hospital’s estimated DSH status for the relevant fiscal year (using the most recently available SSI ratios and Medicaid fractions prior to the beginning of the payment year), and interim payments will be subject to cost report settlement.  The payment methodology for the empirically justified DSH payments will remain unchanged from the existing DSH payment process, with the 75 percent reduction applied on a per-claim basis.

Additional payments for uncompensated care are the product of three factors:

  1. The “Pool”—i.e., the leftover 75 percent of total DSH payments that otherwise would have been paid out under the current statutory formula;
  2. Adjustment factor reflecting the decline in the under-65 uninsured population since 2013; and
  3. Each DSH-eligible hospital’s share of total uncompensated care furnished by all DSH-eligible hospitals.

CMS has finalized its proposal to estimate the 75 percent of DSH payments that otherwise would have been paid under the current DSH formula (Factor 1) using the projections of total Medicare DSH payments prepared in July of each year by the Office of the Actuary.  CMS estimates this amount to be approximately $9.579 billion for FY 2014 (up from $9.2535 billion in the proposed rule).

CMS has also finalized its proposal to use the most recent CBO estimates available and to include unauthorized immigrants in its estimate of the uninsured under-65 population for purposes of determining the adjustment factor to account for the decline in the uninsured population under the Affordable Care Act (Factor 2).  In the Proposed Rule, CMS had proposed to calculate Factor 2 by comparing CBO’s March 20, 2010 estimate of the “Insured Share of the Nonelderly Population Including All Residents” for 2013 (18 percent uninsured) with its February 5, 2013 estimate for 2014 (16 percent uninsured).  This would have resulted in Factor 2 equaling 0.888 (88.8 percent) for FY 2014.  In the Final Rule, however, CMS has employed CBO’s May 2013 and July 2013 revised estimates to calculate the estimated uninsured population for 2014.  Since the CBO estimates are calendar year estimates, CMS has weighted the CBO estimates for CY 2013 (as estimated in May 2013) and CY 2014 (as estimated in May 2013 and updated in July 2013) to determine the estimated uninsured population in fiscal year 2014.  According to the methodology adopted in the Final Rule, Factor 2 equals 0.943 (94.3 percent) for FY 2014, resulting in an increase in the available pool for uncompensated care payments of more than $815 million over the proposed rule estimate.

In order to determine each DSH-eligible hospital’s share of total uncompensated care (Factor 3), CMS has finalized its proposal to employ insured low-income days as a proxy for uncompensated care costs during an interim period while CMS reviews the instructions for Worksheet S-10 and considers what revisions and clarifications might be necessary.  CMS has reiterated its intent to propose that Worksheet S-10 be used to determine Factor 3 “within a reasonable amount of time.”  Factor 3 will be calculated on the basis of each eligible hospital’s proportion of low-income insured days (Medicaid and Medicare SSI patient days) relative to the low-income insured days for all hospitals projected to receive DSH payments.  CMS will calculate Factor 3 for all subsection (d) hospitals, including those that are projected to be ineligible to receive DSH payments, so that in the event that such hospitals are later determined eligible, they can receive uncompensated care payments at the time of cost-report settlement.  CMS projects that there will be 2,437 DSH-eligible hospitals in FY 2014.

A number of commenters expressed concern that not including the uncompensated care payments in the Medicare PRICER would result in MA Plans not paying those amounts even though they had contracted to pay Medicare rates.  CMS has agreed to state the DSH uncompensated care payments on a per-discharge basis which will make it much simpler for MA Plans to determine what amounts they should pay.

Finally, in reaction to ongoing litigation, CMS has finalized its proposal to “readopt” its policy of counting Medicare Advantage patient days as patients who are “entitled to benefits” under Part A in the Medicare fraction of the disproportionate patient percentage (DPP) calculation.