AHA Urges CMS to Withdraw Uncompensated Care Payment Changes

September 15, 2016 - The American Hospital Association (AHA) recently penned a letter to CMS Acting Administrator Andy Slavitt urging the federal agency to withdraw its proposed rule to include third-party payments, such as private payer and Medicare reimbursements, when calculating certain Medicaid uncompensated care payments.

The proposed rule would significantly impact Medicaid Disproportionate Share Hospital (DSH) payments, the AHA argued, which states distribute to hospitals to help them carry the economic burden of treating large proportions of Medicaid and uninsured patients.

CMS released the proposal in August to clarify the methodology for determining hospital-specific DSH payment amounts. The proposed rule was designed to “make clearer in the text of the regulation an existing interpretation that uncompensated care costs include only those costs for Medicaid eligible individuals that remain after accounting for payments received by hospitals by or on behalf of Medicaid eligible individuals, including Medicare and other third party payments that compensate the hospitals for care furnished to such individuals.”

However, the AHA stated that the proposal was less of a clarification on Medicaid reimbursement policy and, in reality, established a whole new regulation with “the intent of avoiding potentially unfavorable federal district court rulings.”

Two cases are currently challenging the use of sub-regulatory guidance by CMS to support its interpretation of the Medicaid DSH policy that allows third-party payments to be included in Medicaid uncompensated care payment calculations. The plaintiffs argue that CMS changed its policy without a mandated notice-and-comment period and they should not have to recoup a portion Medicaid DSH payments based on the new methodology.

“The AHA supports the plaintiffs’ arguments in these cases and believes that CMS’s proposed rule, with a mere 30-day comment period, only creates more chaos and uncertainty for Medicaid DSH hospitals in the face of these pending court decisions,” the letter said.

The industry group also noted that the sub-regulatory guidance used by CMS, which are two FAQs, are inconsistent with the law pertaining to Medicaid uncompensated care payments and the CMS regulation.

In 2008, AHA explained, CMS released a final rule that required states to ensure that hospitals were not receiving uncompensated care payments that exceeded their hospital-specific limit. The rule instructs states to calculate a hospital’s total annual costs for treating patients without health insurance by subtracting Medicaid payments from the total cost of care to Medicaid eligible individuals.

However, CMS announced two new FAQs in 2010 that required states to determine hospital-specific DSH payments by subtracting third-party payments from total cost of care as well as Medicaid reimbursements. AHA says that the 2010 sub-regulatory guidance does not align with the 2008 statute regarding the Medicaid DSH payment methodology.

The organization also argued that including third-party payments in Medicaid DSH reimbursements would not accurately account for patients who have their services covered by a third-party.

“We believe such a policy is unreasonable because it would apply to individuals eligible for Medicaid and with third-party coverage, but for which the Medicaid program was never billed,” stated the letter. “Such is often the case for children with complex health care needs where private insurance pays the hospital bill and the hospital does not bill the Medicaid program.”

Additionally, CMS issued the proposed rule in August to ensure that Medicaid DSH reimbursements reflect each hospital’s actual healthcare costs associated with uncompensated care, but the AHA countered that the new methodology does not reflect the “real economic burden” of hospitals that serve a disproportionate share of low-income and Medicaid patients.

“If this is, in fact, the agency’s intent, we continue to urge it to include the uncompensated costs of services provided by a hospital’s salaried physicians when determining a hospital’s DSH limitation,” wrote the AHA. “For many academic medical centers that employ their physicians, these unreimbursed costs for physician services provided to the uninsured can be significant.”

While the AHA advises CMS to completely withdraw the proposed changes, the organization also asked the federal agency to prospectively enact the rule in the event CMS chooses to finalize it.

“If it [CMS] goes forward with finalizing a change in policy in the calculation of the hospital-specific DSH limitation, it must do so prospectively to give states and hospitals sufficient time to make needed adjustments to ensure compliance,” the letter stated. “Given the current litigation pending in federal court, to do otherwise is to create unnecessary confusion for state Medicaid programs and DSH hospitals.”

Using a prospective approach to the new policy would prevent hospitals from paying back a portion of their uncompensated care revenue and help them avoid a lengthy Medicaid DSH audit.

CMS does not intend to finalize any changes to the Medicaid DSH payment methodology until after the comment period has closed on October 14.

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