Transmittal 18 New Cost Reporting Instructions – Section I. Worksheet S-10 Uncompensated Care

Transmittal 18 changes to Worksheet S-10 Uncompensated Care include the following:

A. Changes to Worksheet S-10 Schedules and Reporting
1. Worksheet S-10 Part II – Acute Care Only CMS’s updated cost report instructions require providers to report Uncompensated Care (UC) costs for acute care services only (based on hospital Medicare provider number) on Worksheet S-10, Part II. Worksheet S-10, Part I will still be used to report uncompensated care costs for the entire hospital complex.  2. Exhibit 3B (Charity Care Listing) & Exhibit 3C (Bad Debt Listing) CMS released standardized templates for Charity Care (Exhibit 3B) and Bad Debt (Exhibit 3C). Notably, these exhibits: 

  • Require separate exhibits for each Medicare Provider (by CMS Certification Number, CCN) that is a part of the Hospital Complex. 
  • Will be utilized by the MACs to check against values in the filed cost report (e.g., the sum of bad debt in the Exhibit must equal total bad debt reported on WS S-10 of the Cost Report). 

3. Factor 3 Updates CMS clarifies the determination of Factor 3 (percentage of UC DSH payments) on Worksheet E Part A Line 35.01. Transmittal 18 updates the Factor 3 calculation for FFY 2023 and forward, as UC DSH payments changed in these years to be based on an average of UC costs from multiple cost reports. CMS also includes information on the calculation of Factor 3 for newly qualifying DSH hospitals.    Toyon’s take: Medicare has not commented whether it will use “acute care” only UC costs on Worksheet S-10, Part II to determine future years of reimbursement. Toyon expects Medicare to evaluate shifts in payment before changing underlying UC cost data. In a recent analysis by Toyon, providers with more than 16% of subacute population (using days as a proxy) received a decrease in UC DSH payments under an “acute care” only method of allocating UC DSH reimbursement.  The new Worksheet S-10 UC cost exhibits are a departure from the templates many MACs utilize during current Worksheet S-10 audits. Furthermore, the industry awaits if the Office of Management and Budget (OMB) will again issue responses to provider comments with further insight on the Exhibits.   Transmittal 18 cost report instructions were proposed in November 2020 and again in June 2022. OMB released responses to comments on the November 2020 proposed instructions here on its website. OMB’s response to the initial Transmittal 18 proposed instructions includes language not specified in CMS’s final Transmittal 18 release. Certain language in OMB’s initial response requires clarification. For instance, OMB’s initial response stated:  “The proposed Exhibit 3C (Bad Debt) listing is not required for an acceptable cost report submission; however, a hospital that receives uncompensated care payments must support the total hospital bad debts claimed on Worksheet S-10. Submission of Exhibit 3C will help reduce requests from Medicare auditors asking the hospital for supporting documentation when reviewing the Worksheet S-10”; and  “We revised the instructions for the “Write Off Date” column to report multiple write-off dates within the cost reporting period of the Worksheet S-10 that the listing supports by entering each date as MM/DD/YYYY separated by a semi-colon.”  Toyon is awaiting further clarification from CMS and the OMB for further insight on specifics reporting charity and bad debt in Exhibits 3B and 3C, respectfully.  B. Updated Definitions and Clarifications Transmittal 18 includes clarifications on medically necessary healthcare (UC costs must be “medically necessary”), non-covered and denied charges as charity care, inferred contractual charges as charity care, contractual allowances (not allowable as UC cost), and courtesy allowances (not allowable as UC cost). Transmittal 18 also includes clarifications that charity care is per a hospital’s written financial assistance policy, and emphasizes the exclusion of charges associated with HRSA Uninsured COVID-19 payments from UC cost.   Toyon’s take: It is recommended providers evaluate their financial assistance policies to determine if they address CMS’s updated definitions and clarifications. Providers should also prepare for a dialog with CMS and its auditors on what constitutes medical necessity for charity care. Medical necessity is a clinical issue, and now CMS may be relying on its financial auditors to determine what is allowable as UC cost. For further information, please contact Liam Corrigan-Carias at 888.514.9312

Toyon Associates Healthcare Finance


Receive a no obligation consultation on how Toyon can help make your cost reporting simpler, easier, and trusted.