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CMS Medicare DSH Ruling Released

The new Ruling will apply to all claims pertaining to these three issues which have jurisdictionally proper pending appeals, or unsettled cost reports for which no Notice of Program Reimbursement (NPR) has been issued. It is further stated that this Ruling shall not be used as the basis for reopening previously settled cost reports for any of the three DSH issues listed above.

Unfortunately, our anticipation and excitement about the announcement has been greatly diminished by the Ruling itself, particularly involving CMS' decision in handling the Medicare Dual Eligible Part A Days issue. CMS has recently received two Dual Eligible Day decisions in Federal District Court (Northeast Hospital Corp. v. Sebelius (M+C days), & Metropolitan Hospital v. Sebelius (Part A days)) that effectively render the Dual Eligible Day component of CMS' Ruling in violation of the Medicare DSH statute. Despite this fact, CMS maintains that the Medicare Part A services associated with exhausted benefit stays and services not covered under Part A (MSP) are to be included in the Medicare SSI ratio of the Medicare DSH calculation. The SSI ratio that is reprocessed by CMS for the reported deficiencies identified by the Baystate Hospital litigation, will include these Dual Eligible Part A days.

SSI Fraction:

From the inception of the DSH adjustment in 1986, CMS has unilaterally calculated the SSI Fraction from Medpar data and SSI eligibility records. The methodology used for this matching process has frequently been disputed and has been the basis of numerous appeals.

In Baystate Medical Center v. Leavitt, 545 F. Supp. 2d 20, as amended, 587 F. Supp. 2d 37, 44 (D.D.C. 2008), the district court concluded that, in certain respects, CMS did not use the best available data in matching Medicare and SSI eligibility data and CMS' data matching techniques were inadequate. As a result, the court ordered CMS to recalculate the SSI ratio by correcting their data match deficiencies and pay the provider additional monies plus interest.

The primary benefit of the CMS Ruling for the SSI fraction results in an improved matching process. The new matching process will include the patient's Social Security Number, in addition to using Title II numbers (included in the SSI records) and Health Insurance Claim Account Numbers (HICANs) (contained in the MedPAR file). Better matching will assist most hospitals identify additional qualifying days, resulting in an increased SSI percentage.

The Ruling also states that CMS will apply the revised matching process that is intended to be adopted for the IPPS 2011 rule. If the proposed 2011 match process is not adopted, then CMS will use the match process outlined in the Baystate district court decision. CMS will apply the new matching process and will recalculate the hospital SSI fractions, resulting in new DSH payment adjustments for all providers with outstanding SSI ratio appeals and unsettled cost reports. This process will effectively render moot each properly pending claim in a DSH appeal involving the hospital's previously calculated SSI fraction and the process by which CMS matches Medicare and SSI eligibility data. As set forth in the Ruling, it is expected the Provider Reimbursement Review Board will remand SSI appeals to the Intermediary or Medicare Administrative Contractor (MAC) for implementation of the CMS Ruling. The exact timing of the remand is unknown.

Dual-Eligible (Part A Exhausted and Noncovered Part A) Days:

The Ruling requires the inclusion of dual eligible patient days that were not covered or paid under Medicare Part A (due to Part A benefits being exhausted, Medicare was secondary payer and did not pay, or the patient had Medicare M+C benefits) in revised SSI ratios for cost reports prior to 10/1/2004, which have not been settled with an NPR, or for appeals that are pending on this issue.

Under the CMS Ruling dual eligible days will be included in the SSI ratio of the Medicare DSH calculation. This treatment is contrary to the Medicare DSH statute based upon numerous appeals that have contended these days should be excluded from the SSI fraction and included in the numerator of the Medicaid fraction. Given that CMS has not been prevailing on the Dual Eligible Day issue in court, we anticipate an appeal of the Dual Eligible Day issue will be necessary after RNPR's are received.

The inclusion of dual eligible days in the SSI ratio is expected to reduce the SSI percentage and corresponding DSH payment adjustment.

Labor and Delivery Days:

Labor and delivery days will be included in the Medicaid fraction for cost reporting periods beginning before October 1, 2009. Last year's final IPPS rule made this change effective prospectively for cost reporting periods beginning on or after October 1, 2009. The Ruling states that these days will be added to the SSI fraction for Medicare dual–eligible patients where applicable. We anticipate virtually no one will be impacted by the inclusion of dual eligible labor room days in the SSI fraction as it is believed CMS has already included these days in the previously published SSI fractions.

For most hospitals the inclusion of labor room days in the Medicaid fraction is a positive development. However, teaching hospitals could suffer from the inclusion of labor room days, as the increase in total patient days will reduce graduate medical education reimbursement and capital payments related to indirect medical education reimbursement. Whether a hospital receives additional DSH reimbursement or loses DSH reimbursement as a result of including labor room days in the Medicaid fraction will depend upon the hospital's individual patient mix and the size of their teaching program, if applicable.

While the Ruling allows full appeal rights, it appears that to some degree we are starting all over again. Further, CMS' Ruling could result in an overall negative adjustment to Provider's DSH payments. It is likely that there will be legal challenges to the Ruling.

Lastly, it is of particular concern that the Ruling provides for Unitary relief of all three DSH issues. Unitary relief provides that if a provider has a qualifying open cost report, or a pending appeal on one of the three DSH issues, CMS will recalculate the SSI ratio to cover all three issues.

We are continuing to review the Ruling to determine its impact on our clients and are conferring with our legal counsel to formulate our response and approach. We will keep you informed as we identify new information or issues.

Should you have any questions regarding this matter please contact us at (925) 685-9312.