AHA: Uncompensated Care Costs Worksheet Inaccurate, Inconsistent

April 11, 2017 - The American Hospital Association (AHA) recently called on CMS to audit and modify the hospital cost report, Worksheet S-10, before the federal agency uses the report to determine each hospital’s uncompensated care costs and supplemental reimbursements.

“We urge CMS to take additional steps to ensure the accuracy, consistency and completeness of these data prior to their use,” wrote Thomas P. Nickels, AHA Executive Vice President. “This entails auditing the S-10 data, as well as making other modifications to the S-10 worksheet, including, but not limited to, adopting a broad definition of uncompensated care costs to include all unreimbursed and uncompensated care costs, such as Medicaid shortfalls and discounts for the uninsured.”

For several years, CMS has considered using Worksheet S-10 data to calculate hospital charity care and bad debt instead of the current Medicaid and Medicare Supplemental Security Income days methodology. The data would determine Medicare Disproportionate Share Hospital reimbursements.

However, the federal agency and other stakeholders remained concerned that the data was neither complete nor consistent.

In the final 2017 Medicare inpatient prospective payment system rule, CMS announced its intention to update the hospital cost report to improve quality controls and data measures before the federal agency starts to use the data for uncompensated care payment calculations.

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The final rule also stated that CMS plans to use Worksheet S-10 data for Medicare Disproportionate Share Hospital reimbursements no later than 2021.

The AHA generally supported the use of Worksheet S-10 data, but the industry group expressed concerns about data validity and accuracy.

“Specifically, the form and its instructions are unclear in some places and lack specificity in others,” Nickels explained. “While CMS has indicated that it would ‘trim’ the S-10 data to remove certain anomalous data points, such a method does not improve the accuracy or consistency of the actual data itself.”

The organization revealed several reporting inconsistencies based on 2014 and 2015 Worksheet S-10 data. For example, the 2015 data showed that almost 8 percent of hospitals reported charity care charges of zero on Line 20 and more than 1 percent reported bad debt expenses of zero on Line 28.

“While incurring no charity care or bad debt is certainly possible, the high number of hospitals reporting such raises a red flag and supports the necessity of an audit,” the AHA pointed out.

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The 2014 Worksheet S-10 data also showed that many hospitals reported uncompensated care costs on Line 30 that totaled more than 50 percent of their total facility expenses. One of these hospitals stated in the report that it had uncompensated care costs that were upwards of 800 percent of its total expenses, while another hospital reportedly had bad debt expenses that were more than 2,000 percent of its total expenses.

The AHA also stated that the cost report’s categories for patient costs create reporting inconsistencies. Hospitals must submit data on the difference between revenue and costs for specific healthcare programs, such as Medicaid, the Children’s Health Insurance Program (CHIP), and state or local government programs.

But the mutually exclusive categories do not reflect how some patients can fall under a hospital’s charity care policy and still be covered by the healthcare programs. The patients may also participate in a program and still have bad debt, the industry group explained.

“Therefore, when reporting values for these various categories, each provider must make decisions how to report these data in a mutually exclusive way, and there is no indication that they do so consistently around the country,” wrote Nickels.

To ensure Worksheet S-10 data accurately captures uncompensated care costs, the AHA advised CMS to audit the data for correctness and completeness.

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“We note that hospitals are eager to learn how auditors will interpret the Worksheet S-10, and greater clarity of CMS’s expectations would ensure hospitals are in a much better position when they fill out the Worksheet S-10,” the industry group continued.

CMS should also transition Worksheet S-10 data use through a phase-in and/or stop-loss policy approach. The AHA-suggested approach would help mitigate large reimbursement fluctuations and stabilize Medicare Disproportionate Share Hospital payments, the group argued.

The AHA also offered several Worksheet S-10 data improvements, including a broader definition of uncompensated care costs. The industry group contended that uncompensated care should encompass all unreimbursed and uncompensated costs, including costs stemming from Medicaid and other state and local government indigent care programs.

The definition should also include any discounts to uninsured patients who are unable or unwilling to give income information to the hospital.

“This broad definition of uncompensated care costs will be important in accurately measuring a hospital’s unreimbursed costs, and it will ensure the most appropriate basis for calculating future uncompensated care payments,” Nickels added.

CMS should also revise the trim methodology that would give the statewide average cost-to-charges ratio to all hospitals with a Worksheet S-10 cost-to-charges ratio above the set ceiling or greater than 3.0 standard deviations above the geometric mean.

“Specifically, we are concerned that, under that proposal, CMS would trim hospitals that had CCRs [cost-to-charges ratio] that appeared to be anomalous, but were actually the result of their use of alternative methods of cost accounting that had previously been approved by Medicare audit contractors,” the group stated. “We continue to urge CMS to revise its trim methodology so that it does not penalize these providers.”

In addition to broader worksheet changes, the industry group also recommended the following line-specific modifications:

• Make the numerator and denominator for the ratio of cost-to-charges on line 1 more consistent by adding graduate medical education costs to column 3 just as column 8 does

• Create a separate line for Medicaid Disproportionate Share Hospital payments rather than including the payments in total Medicaid revenues on line 2

• Develop a separate line to report non-Disproportionate Share Hospital payments (e.g., upper payment limits) rather than including the data in Medicaid revenue

• Separate stand-alone CHIP from Medicaid line items

• Eliminate worksheet lines that show grants, gifts, and investment income relating to uncompensated care as well as lines that report data on general hospital operation because the lines seem to be informational only

Additionally, the AHA urged CMS to annualize the amounts reported on the cost reports to ensure uncompensated care cost calculations are accurate. With hospitals operating under different cost-reporting periods, CMS should standardize the data for the whole year to prevent a reduced number of Medicare and Medicare Supplemental Security Income days under a shorter cost-reporting period from affecting Disproportionate Share Hospital payments.

Without the appropriate changes, the industry group emphasized that Worksheet S-10 shortfalls could substantially impact Medicare Disproportionate Share Hospital payments.

“These inaccuracies and inconsistencies have a critical impact on the distribution of Medicare DSH [Disproportionate Share Hospital] payments,” Nickels wrote. “That is, because the 75-percent pool is a fixed amount, inaccurately reported data by one hospital will affect the DSH payments of all other hospitals.”

“In addition, because Congress has generally foreclosed subsequent administrative and judicial review of DSH payment calculations, hospitals have no recourse to correct data after it is used,” he continued. “It is critical for CMS to ensure this data is accurate and consistent before its use.”