Empirically Justified Medicare DSH Payments and Uncompensated Care Payments
Section 3133 of the Affordable Care Act modified the Medicare disproportionate share hospital payment methodology beginning in FY 2014. Also, beginning in FY 2014, DSH hospitals began receiving 25% of the amount they previously would have been reimbursed under the traditional Medicare DSH formula. The remaining 75% adjusted for the percent of uninsured will be paid through the uncompensated care reimbursement methodology outlined below and updated for FY 2024.
Estimate of 75% (100% minus 25%) of Medicare DSH payments that would otherwise be made, in the absence of section 1886(r) of the Act, for the fiscal year FY 2024:
$13,353,588,029 * 75 = $10,015,191,022 = Uncompensated Care Pool
$13,353,588,029 * 25 = $ 3,338,397,008 = Empirical DSH payments
The Affordable Care Act established Factor 2 in the calculation of the uncompensated care payment. Specifically, the Act provides that for FYs 2014, 2015, 2016 and 2017, a factor equal to 1 minus the percent change in the percent of individuals under the age of 65 who are uninsured as determined by comparing the percent of such individuals who are uninsured in 2013, the last year before coverage expansion under the Affordable Care Act, to that same percent for the year in question.
In FY 2018 and forward, the act authorized the use of data sources other than Congressional Budget Office (CBO) estimates to determine the uninsured percentage as determined by the Secretary based on data from the Census Bureau or other source determined appropriate by the Secretary and certified by the Chief Actuary of CMS. The Act also does not require that the percentage of individuals be limited to those under the age of 65 for FY 2018 and forward.
The criteria that was set for determining a data source are as follows:
- The source accounts for the full U.S. population
- Comprehensively accounts for both public and private health insurance coverage
- Utilized data from the Census Bureau
- Timeliness of the estimates
- Continuity of the estimates over time
- Accuracy of estimates
- Availability of projections
The source determined in FY 2018 that meets these criteria is data from CMS’ Office of the Actuary (OACT), derived as part of the development of the National Health Expenditure Accounts (NHEA) which represents official estimates of the economic activity within healthcare according to CMS. This data estimated the uninsured rate for 2013 was 14% and for 2024 is 9.20%.
Based on this information the calculation of Factor 2 for FY 2022 is as follows: 1-((0.14-0.083)/0.14) =1-0.4071=0.5929
Factor 3 is a hospital-specific value that identifies the share of the estimated uncompensated care amount for each hospital receiving Medicare DSH payments.
The hospital’s Cost of Uncompensated care is from the Medicare cost report, WS S-10 Ln 30-comprised of the following elements:
- Cost of charity care (Line 23)
- Non-Medicare and non-reimbursable Medicare bad debt (Line 29)
CMS will utilize the data from FY 2018, 2019 and 2020 Medicare cost reports as these are the most recent audited data and the results of those audits are available for FY 2024. The methodology will average these three years for factor three to determine the UC costs.
Below is a summary of the three factors used for the uncompensated care payments since FY 2014: