Month / Year

Tag: Bad Debts

Measuring Healthcare – Uncompensated Care DSH

The Affordable Care Act (ACA)
According to the ACA, Medicare’s Uncompensated Care Disproportionate Share (DSH) recognizes “the amount of uncompensated care for…treating the uninsured.”

“Uninsured” – as opposed to “charity” (or similar for low-income patients) – presents the following questions:

  • When is a patient considered uninsured? 
  • What is the difference between low-income uninsured patients and all other patients? 
  • How does a comprehensive process identifying all categories of uninsured patients affect hospital operations and the financial assistance policy?

This article looks at CMS’s proposed cost report instructions to provide more insight to these questions, while providing recommendations for hospital teams.

Notable Proposed Cost Report Changes
In November 2020, CMS proposed new cost reporting instructions for FFY 2021uncompensated care cost reporting on Worksheet S-10.[1] These proposed instructions include changes and clarifications in reporting noteworthy categories of uncompensated care cost:

  • Allowed: Liability for patients with insurance but determined to be uninsured.
    More under “Other Uninsured Charity Care”
  • Not Allowed: Charge discounts from inferred contractual relationships.
    More under “Inferred Contracts and Significant Losses”…
  • Allowed: Implicit Price Concessions[2] are reportable as bad debt costs.
    More under “Bad Debt and Discovery”
  • Not Allowed: Sub-acute care costs outside general short term hospital inpatient and outpatient services (not billable under the hospital CCN). This is a major shift in reimbursement.
    More under “Short Term Hospital Services Only”

[1] Federal Registers, Vol 85 No 218

[2] Accounting Standards Update, Topic 606


Other Uninsured Charity Care
CMS’s proposed language clarifies providers may report other forms of “charity” related to insured patients, provided this care is in the financial assistance policy.  Specifically, CMS states providers may report:

  • the “…portion of total charges for insured patients that were determined uninsured for the entire hospital stay;”[1] and
  • “charges other than deductible, coinsurance and copay (C+D) amounts that represent the insured patient’s liability for medically necessary hospital services”[2]

Both instructions relate to insured patients with charges that are not covered by the patient’s insurance carrier. Therefore, providers may consider reporting non-covered charges and exhausted benefit charges from all payers as forms of charity care, provided these discounts are specified in a hospital’s financial assistance policy. 

But what does it mean to specify non-covered charges from all payers as charity care in a financial assistance policy? For tax exempt providers, how does allowing non-covered charges from all payers relate to IRS 501 (r) requiring hospitals to include amounts and methods for patients to receive free or discounted care?

Contrary to complex cost reporting instructions, the financial assistance policy is a public facing document designed to help patients navigate the healthcare system. As more cost reporting instructions are dependent on this policy, it becomes muddied with caveats, as opposed to a concise, easy-to-read, patient-centered document. An internal policy – apart from the patient financial assistance policy – delineating the accounting of charity care may be prudent to 1) maintain a separate patient friendly policy; and 2) present evidence of compliance with cost report instructions.

When it comes to financial assistance policy governance, generally CMS does not regulate how providers articulate charity care in their policies (one notable exception relates to Medicare FFS bad debts, whereby CMS does not allow presumptive charity eligibility determinations).  For all other forms of charity, CMS states:

“(CMS) does not set charity care criteria policy for hospitals, and within reason, hospitals can establish their own criteria forwhat constitutes charity care in their charity care and/or financial assistance policies.[3]

CMS has not further elaborated on what constitutes “within reason,” to be considered as charity care. However, as presented above, the proposed cost report instructions indicate a broad definition including charges from a remaining patient liability.

Recommendation: Evaluate the reporting of non-covered and exhausted charges from all payers against current hospital procedure.  Hospital teams are encouraged to assess:

  • If patients are billed the outstanding amount. 
    For instance, a provider may pursue payment from secondary and tertiary payers, and then the patient for non-covered services.
  • When and where these transactions are reported in the patient financial system (i.e., account adjudication). 
    For instance, after collection attempts, and a payment is not received, the resulting “write-off” can end up in various transaction types including 1) bad debt – recognized as uncompensated care cost; 2) contractual allowance – not recognized as uncompensated care cost; or 3) denial | non-covered transaction code – recognition of uncompensated care cost depends (typically, providers report charges related to non-covered Medicaid from these codes). 
  • and 3) the benefit of changing policy and procedures so these amounts may be recognized as charity care.  

A statistic to help this evaluation: Providers are reimbursed approximately $250,000 for every $1M in charity cost.[4] 

A thought on policy variation and Section 501(r) – For reporting as uncompensated care cost, it is important to include financial assistance policy language discussing non-covered charges as patient financial assistance.  This helps ensure the policy includes the basis and method patients may receive financial assistance.  In question is the appropriateness of two beneficiaries with the same plan, whereby one is responsible for the coinsurance, while the other received charity related to a non-covered service.  This is an important question that must be considered and continuously evaluated.

[1] Reported on Worksheet S-10 Line 20, Column 1

[2] Reported on Worksheet S-10 Line 20, Column 2 and Line 25.01 Column 1

[3] FFY 2021 IPPS Final Rule

[4] Charges reduced by the cost to charge ratio.


Inferred Contracts and Significant Losses
As discussed above, non-covered charges and exhausted benefits charges from all payers are forms of charity care.  Okay got it.  However, CMS also proposes providers cannot report charges from insured patients under contract, or inferred contract with the hospital.  In the proposed cost report instructions for FFY 2021, CMS states providers may report:

“the portion of total charges for patients with coverage from an entity/insurer that does not have a contractual or inferred contractual relationship (a contractual relationship between an insurer and a provider will be inferred where a provider accepts an amount from an insurer as payment, or partial payment, on behalf of an insured patient) with the provider.” 

Separate from a “non-covered charge,” this proposed language seemingly follows the principle that payment shortfalls are not a form of charity care, focusing on insured patients not under contract with the hospital (e.g., “out of network”).   Consider the following example:

  • Charges: $200,000
  • Cost: $50,000
  • Payment from Auto Policy: $5,000
  • Unreimbursed Cost = $45,000

sizable charitable discount, the $45,000 shortfall may not be considered a form of charity care. 

However, this brings back the question – at what point does this patient become uninsured? 

Recommendation: Evaluate the out of network population, and determine if “splitting the account” is appropriate to break-apart the insurance portion from the patient portion.  If the $45,000 is considered as the patient portion, this may be the practical approach for recognizing the amount as charity care.[1]  As discussed above, this accounting exercise may be another reason an internal policy is beneficial to hospitals, while maintaining a separate patient centered document.  

It does not go unnoticed developing an internal policy may become a “Pandora’s box” identifying all types of charity care – resulting in variation of DSH hospitals across the country.  To address this issue, it is recommended CMS and other industry leaders develop a payment to cost ratio for out of network reimbursement.   Amounts below a threshold of “normal and customary” rates should be considered and re-evaluated as charity care eligible. 


[1] Provider would report $195,000 in charges, netting to approximately $45,000 in uncompensated care cost. 


Bad Debt and Discovery
After years of industry contemplation, CMS’s cost report instructions for reporting bad debt includes implied price concessions.[1]  Essentially, this is business as usual for reporting bad debts on Worksheet S-10 of the cost report.  Due to the change in bad debt reporting for audited financial statements, during audit providers may not be able to produce a bad debt “roll forward” schedule.[2]  In these cases, it is recommended providers disclose how “bad debts” relate to financial statements and request to be waived from the requirement of producing this reconciliation. 

Although it is business as usual for reporting bad debts, providers continue to discover anomalies with prior year bad debt accounts.  More specifically, providers are discovering old bad debt accounts that qualify for charity care. 

Why is this important?  Because when patient C+D amounts are reported as bad debt, they are reduced to an amount less than cost.  However, when patient C+D amounts are reported as charity care, the full amount is recognized as uncompensated care cost.  CMS has employed this calculation since the inception of uncompensated care cost for Uncompensated Care DSH payments (starting FFY 2018). 

Consider the impact to uncompensated care cost from thousands of accounts like the example below:

Reported as Charity Care

  • Amount Written Off to Charity Care: $5,000
  • Charity Cost: $5,000 (amount of recognized uncompensated care cost on Worksheet S-10)

The question that looms for providers discovering charity care in aged bad debt accounts – may old bad debt accounts be reversed and reclassified as charity care?  In a system of write-offs and reversals, this seems like a real possibility – especially considering the practice of “smoothing” costs so that the true answer is achieved over time. Another example of “smoothing” in reimbursement is in the wage index – providers report salaries from the general ledger (accrual-based accounting) and hours associated with paid salaries from the payroll file (cash-based accounting).[3] 

Ultimately, the ability to reclassify bad debt accounts may come back to how the amounts relate to a hospital’s financial statement in prior years.  A reclassification of bad debts may require a restatement of financial statements.  For optimization of Uncompensated Care DSH payments, these efforts certainly can be worth the time and resources. 

Recommendation: Hospitals are encouraged to evaluate prior year bad debt write-offs to determine if any amounts are truly charity care.

[1] Accounting Standards Update, Topic 606.

[2] Scheduling showing bad debts relationship in accounts receivable at the beginning of the hospital fiscal year vs. the end of the fiscal year.

[3] Per CMS 2552-10 instructions for wage index – “Although this methodology does not provide a perfect match between paid costs and paid hours for a given year, it approximates a match between costs and hours.”


Short Term Hospital Services Only
CMS’s proposal shifting Uncompensated Care DSH to only recognize short-term hospital services is a major change, especially for safety net hospitals providing essential sub-acute care services to low-income patients (e.g., behavioral health, rehabilitation, SNF, etc.).   Providers with subacute care need to prepare for significant decreases in Uncompensated Care DSH payments, estimated to be effective in FFY 2025.  This change emphasizes the importance of identifying all other uninsured costs, as discussed throughout this article.   In FFY 2021, providers with subacute care received $5.3bn (63%) of the $8.3bn in national Uncompensated Care DSH funding.

Recommendation: Hospitals providing subacute care[1], billed under a CMS Certification Number (CCN) apart for the Hospital CCN, should evaluate the portion of uncompensated care cost (Charity and Bad Debt), as well as the cost-to-charge structure, to determine the amount of uncompensated care cost CMS is proposing to exclude from future Uncompensated Care DSH payments.  This information can help hospitals prepare for this a potentially large swing in Medicare reimbursements. 

Uncompensated Care DSH and COVID-19

There is no doubt COVID-19 has changed access to healthcare and the amount of uncompensated care provided during 2020 and 2021.  Under CMS’s current method, these years would be the baseline driving Uncompensated Care DSH payments in FFY 2024 and FFY 2025. However, the data is atypical and with an uncertain future, recognizing these uncompensated care costs comes with consequences.  For instance, there will be variation in the amount of uncompensated care delivered at hospitals in states with longer stay at home mandates vs. hospitals in states with-out these restrictions (or less restrictions).  

Recommendation: As the industry moves forward, we should do so with caution, carefully evaluating the appropriateness using data from the public health emergency.  Last Federal Year, FFY 2020, CMS applied a COVID related adjustment to Uncompensated Care DSH, using a more current estimate of unemployment in determining “Factor 2,” resulting in an additional $500M in national funding.

The ACA mandates Uncompensated Care DSH is based on “appropriate data” or other “alternative data” that is “a better proxy for the costs. . . of treating the uninsured.”  As we adapt to life during and after COVID-19, the industry may also have to discover the alternative data that best measures uncompensated care provided during this extraordinary time.    

[1] Billed under a CMS Certification Number (CCN) apart from the Hospital CCN


Thank You

Toyon Associates, Inc. appreciates the opportunity to present and discuss reimbursement issues with thought leaders in the healthcare industry.  For more discussion and information, please contact Fred Fisher at 888.514.9312 or


Toyon Associates, Inc.

Back to top

FFY2021 Medicare IPPS Proposed Rule & Other Recently Published Rules

IPPS Proposed Rule – FFY2021

CMS-1735-P drafted on 5/11/2020; Published in the Federal Register on 5/29/2020

On May 11, 2020, the Centers for Medicare & Medicaid Services (CMS) proposed a rule that focuses the agency’s efforts on a singular objective:  transforming the healthcare delivery system through competition and innovation to provide patients with better value and results.  The proposed rule updates Medicare payment policies and rates for hospitals under the Inpatient Prospective Payment System (IPPS) and the Long-Term Care Hospital (LTCH) Prospective Payment System (PPS), effective for discharges on or after October 1, 2020.

The policies in the IPPS and LTCH PPS proposed rule would bring significant changes to MS-DRG weights, along with associated cost report changes, as well as tightening of Medicare bad debt policies, standardization of data collection periods for quality programs, and easing of GME program closure policies.

Overall, the proposed rule is projected to result in an estimated increase of $2.0B (or 1.6%) in payments to providers, with smaller increases for urban, Medicare-dependent hospitals and larger increases for Mid-Atlantic and Pacific region hospitals.

Comments must be sent to CMS no later than 5pm EDT on July 10, 2010 at the applicable address provided in each section of the Proposed Rule or submitted electronically at  When commenting, please refer to file code CMS-1735-P.

Medicare IPPS Base Rates

CMS is proposing a base rate increase of 3.2% for hospitals, mostly driven by a market basket increase of 3.0% and the reversal of the MACRA coding adjustment of 0.5%.  A new budget-neutrality factor adjustment was introduced this year to account for the change in Allogeneic Stem Cell Acquisition reimbursement to cost-based.

Click here for the full base rate calculation table and comparison to prior year.

MS-DRG v38 Changes

CMS has proposed their annual recalibration of the MS-DRG weights for FFY2021.  Transplants and one extensive burn DRG (927) have once again received the largest increases, while other heart assist devices and intracranial vascular procedures with hemorrhages have experienced significant reductions in weighting.  A listing of the largest changes in weighting between MS-DRGs v37 and v38 are noted below:

Click here for a table of the MS-DRG v37 to v38 comparison.

In addition, CMS has proposed the following new DRGs for FFY2021, some of which were further subdivisions of previous DRGs:

Note:  New MS-DRGs 521 and 522 will both be subject to the special transfer payment adjustment.

The proposed fixed-loss outlier threshold for FFY2021 is $30,006.

Proposed Market-Based MS-DRG Weights Beginning in FFY2024

In an effort to reduce the cost of healthcare, CMS has proposed a radical shift in how it hopes to compute the weighting for MS-DRGs in FFY2024 and beyond.  CMS believes that by moving from the cost-based DRG weight methodology that was introduced in FFY2007 to the proposed weighting methodology that would reflect the relative market value for inpatient services, it can reduce its reliance on hospital chargemasters for determining DRG reimbursement.

Building on the Hospital Price Transparency Rule (84 FR 65538, 11/27/2019), CMS believes that hospitals will be able to calculate median payer-specific negotiated charges for each MS-DRG, as they will already be required to gather and publish much of this data.  CMS recognizes that this cost report data would become publicly accessible, but because only the de-identified median values would be reported, any proprietary information would not be exposed.

CMS has proposed to begin gathering this data from hospitals by making changes to the Medicare cost report forms for cost reporting periods ending on or after January 1, 2021.  Hospitals will be required to tabulate and report for each MS-DRG the median payer-specific negotiated charges for all Medicare Advantage payers and for all combined third-party payers.  The required cost reporting changes will be proposed in more detail in the Information Collection Request approved under OMB No. 0938-0050.

CMS is seeking comment on this proposed weighting change and its relative burden of calculating, as well as other issues that may address payers that don’t pay under MS-DRGs and whether or not a transition period to these new market-based MS-DRGs should be provided.  Hospitals that do not negotiate payment rates, such as federally-owned facilities, Indian Health Service facilities, Critical Access Hospitals (CAHs), and hospitals located in Maryland, would be exempted from this proposed data collection.

Cost-based Reimbursement for Allogeneic Hematopoietic Stem Cell Acquisition Costs

CMS is proposing to begin reimbursing on a reasonable cost basis the acquisition costs associated with allogeneic hematopoietic stem cell transplants (i.e., when stem cells are obtained from a donor rather than the recipient).  Currently, these costs are included within the MD-DRG payment.  The proposed cost reimbursement will be similar to the methodology in which the acquisition costs for solid organs are reimbursed.  Providers will be billed and paid for these costs on an interim payment basis as a “pass-through” item.

Effective for cost reporting periods beginning on or after October 1, 2020, hospitals that provide these services will need to begin following these procedures:

  1. Gather and report acquisition costs on Line 77 of the Medicare cost report
    • (Note: This has been a requirement for services rendered on or after January 1, 2017.)
    • Acquisition costs include registry fees, tissue typing, donor evaluation, costs associated with the collection procedure, post-procedure evaluation of the donor, and the preparation and processing of stem cells
    • Overhead allocations associated with these costs will also be allowed. CMS is developing a worksheet similar to Worksheet D-4 to allow providers to capture these costs, as well as to report charges by routine and ancillary cost centers.
  2. Formulate a standard acquisition charge, and include this charge on the inpatient hospital bill for the MS-DRG using Revenue Code 815
  3. Tabulate the hospital’s Medicare share of costs by developing a ratio of the number of allogeneic hematopoietic stem cell transplants furnished to Medicare beneficiaries to the total number of those same procedures furnished to all patients

Toyon’s Take:  Because these amounts will now be reimbursed on a reasonable cost basis, it is important that hospitals verify that they are properly capturing all of these costs and statistics in order to ensure adequate reimbursement. 

For additional information or assistance with calculating these amounts, please contact Robert Howey at

Clarification of Long-Standing Medicare Bad Debt Policies

In an effort to clarify the rules related to the demonstration of a reasonable collection effort, CMS is clarifying the policies related to claiming Medicare Bad Debts:

  • Similar Collection Efforts: CMS is stressing that the reasonable collection effort required for a non-indigent Medicare beneficiary must be similar to the effort made by the provider and/or collection agency acting on the provider’s behalf, puts forth to collect comparable amounts from non-Medicare patients.  The hospital needs to have a consistent collection policy for all payers.  Hospitals should be prepared for the MAC to sample and review both Medicare and non-Medicare patients during audits.
  • Timely Beneficiary Bills: A provider must issue a bill to the beneficiary or party responsible for the beneficiary’s personal financial obligations on or before 120 days after
    1. The date of the Medicare remittance advice; OR
    2. The date of the remittance advice from the beneficiary’s secondary payer, if any, whichever is latest

(Note:  Reasonable collection efforts include subsequent billings, collection letters and telephone calls, or personal contacts constituting a genuine collection effort.)

  • Determining Uncollectibility: A provider must make reasonable and customary attempts to collect a bill for at least 120 days from (and including) the date the first bill is mailed to the beneficiary.  If the debt remains unpaid on the 121st day from the date the first bill is mailed, the provider can cease collection efforts and write off the unpaid balance.  If a partial payment is received within the 120-day collection effort period, the 120-day time period resets on the date the partial payment is received.  The hospital must continue to bill the beneficiary for 120 days.
  • QMB Liability: For Qualified Medicare Beneficiaries (QMB), the State Medicaid program must be billed.  If the State does not provide a Medicaid RA, CMS is considering adopting a policy that the provider could obtain and submit to its MAC some form of alternative documentation to evidence a State’s Medicare cost-sharing liability (or absence thereof).  CMS welcomes suggestions from stakeholders regarding the best alternative documentation to the Medicaid RA that a provider could obtain and submit.
  • Write-Off Procedures: All Medicare bad debt, including Medicare/Medicaid crossover claims, must not be written off to a contractual allowance account but must be charged to an expense account for uncollectible accounts (e.g., bad debt or implicit price concession).  This would be effective for cost reports beginning on or after October 1, 2020.  CMS had previously stated that this would be effective for cost reports beginning on or after October 1, 2019, so it appears that providers will be granted additional time to implement these internal procedures.
  • Presumptive Charity: CMS is also proposing clarification to the definition of presumptive charity.  For a hospital to define an indigent non-dual eligible beneficiary, the provider must apply its customary methods under the following requirements:
    1. The beneficiary’s indigence must be determined by the provider;
    2. The provider must take into account a beneficiary’s total resources, which include but are not limited to, an analysis of assets (i.e., only those convertible to cash and unnecessary for daily living), liabilities, and income and expenses (Note: Extenuating circumstances affecting the determination of the beneficiary’s indigence must also be considered.); AND
    3. The provider must determine that no source other than the beneficiary would be legally responsible for the beneficiary’s medical bill (e.g., legal guardian).

Toyon’s Take: The provider must maintain and be ready to provide documentation describing the method by which indigence was determined.  Once indigence is determined and there has been no improvement in the beneficiary’s status, the bad debt may be deemed uncollectible without applying a collection effort.  Providers should review their Financial Assistance Policy, and if presumptive charity is being used as a method to determine indigence, we recommend sending a comment to ensure that CMS will allow this as a reasonable method in determining indigence.

For additional information, please contact Dylan Chinea at

Changes to Wage Index

Based on the CMS proposed changes for FFY2021, the occupational-mix adjusted national average hourly wage is estimated to be $45.07, representing an increase of 2.10% from the prior year.

CMS proposed and finalized a policy in FFY2020 to reduce wage index high-to-low disparities by increasing the values for low wage index hospitals below the 25th percentile (or a WIF of 0.8420 in FFY2021). In FFY2020, CMS anticipated that it would continue this policy for at least four years, acknowledging that providers in these lower-quartile states would improve employee compensation within four years as a result of the higher wage index. Accordingly, CMS is proposing to continue this policy in FFY2021. Consistent with the finalized policy in FFY2020, in FFY2021 CMS will “fund” this policy by applying a uniform budget neutrality adjustment. The proposed low wage index hospital policy budget neutrality factor is 0.998241 (compared to 0.997987 in FFY2020).

In FFY2020, CMS also proposed and finalized a change to the rural floor calculation by removing urban-to-rural reclassifications from the statewide rural floor. CMS is proposing to continue this policy in FFY2021 so that state rural floors would be calculated without including the wage data of urban hospitals that have reclassified as rural.

As a result of the policy changes noted above, CMS finalized a cap of 5% on the decrease of any hospital’s wage index from FFY2019 to FFY2020. While this cap was set to expire in FFY2020, CMS is proposing to continue to apply this cap in FFY2021 and apply a budget neutrality adjustment for this proposed transition policy in the same manner as FFY2020. The reason for the cap in FFY2021 is a result of the Office of Budget & Management (OMB) updates noted below.

CMS Proposed Changes to Core-Based Statistical Areas (CBSAs)

The wage index is calculated and assigned to hospitals on the basis of the labor market in which the hospital is located, based on OMB-established CBSAs. The current OMB delineations are based on OMB Bulletin No. 13-01 issued on February 28, 2013, which revised a number of CBSAs starting with FFY2015 due to changes in 2010 Census data. Normally, Census data only impacts CBSA delineations every 10 years; however, OMB Bulletin No. 18-04 issued on September 14, 2018, contained material changes to the OMB statistical area delineations. Specifically, under these revised OMB delineations, new CBSAs would be created, urban counties would become rural counties, rural continues would become urban counties, and some existing CBSAs would be split apart. In addition, the revised OMB delineations affect various hospital reclassifications, the out-migration adjustment (accounting for employee commuting patterns), and the treatment of hospitals located in certain rural counties known as “Lugar” hospitals.

CMS is proposing to incorporate the revised OMB delineations from OMB Bulletin No. 18-04 in FFY2021 to “increase the integrity of the IPPS wage index system by creating a more accurate representation of geographic variations in wage levels.”

The proposed changes to current CBSA designations due the revised OMB delineations include the following:

  1. Urban counties that would become rural
  2. Rural counties that would become urban
  3. Urban counties that would move to a different urban CBSA

Click here for tables listing the proposed changes to the counties noted in #1 – 3 above.

As mentioned above, and to mitigate any potential impact to a CBSA’s wage index due to the revised OMB delineations, CMS is proposing a transition policy to apply a 5% cap on any decrease to a hospital’s proposed FFY2021 wage index from the hospital’s final wage index from FFY2020. This policy would be made budget neutral consistent with the last fiscal period in which revised OMB delineations were applied (FFY2015). The proposed budget neutrality as a result of this transition policy is 0.998580.

Click here for a comparison of current and prior WIFs for each hospital, which includes the proposed transition policy cap of 5%.

Toyon’s Take:  The transition policy as proposed by CMS to apply the revised OMB delineations is appropriate and consistent with past year’s where CMS had to apply similar revisions to the CBSA designations. The impact to urban hospitals as a result of the revised OMB delineations is minimal with the exception of hospitals in the Northeast, primarily New York-New Jersey, as a number of counties were redefined to new CBSA designations and “moved out” of New York City which historically has produced a higher wage index for such hospitals. The impact to these hospitals specifically will be mitigated in FFY2021 as proposed due to the transition policy; however, beyond FFY2021 the impact could be significant. Hospitals in these areas need to pay close attention to their wage index filings and consider any reclassification opportunities, and also, if a hospital in these areas has an existing MGCRB reclassification, it should review the reassignment policy as proposed by CMS to ensure the hospital is reclassified to the expected geographic area.

Other Proposed Changes Impacting Wage Index

  • CMS acknowledges an increase in the number of wage index appeals relating to MACs’ disallowance of wages and hours that hospitals believe are associated with Part A administrative physician time but which the MACs believe are not properly documented as such, or are associated with Part B billable activities, which would not be allowable for wage index reporting.
    • While CMS does not propose any changes to how hospitals are to document Part A administrative physician time, it provides clarification and specific instructions as stated in the PRM.
  • CMS is proposing changes to existing regulations to allow MGCRB appeals to be submitted electronically, by fax, or by other electronic means.
  • Applications to the MGCRB for FFY2022 reclassifications, as well as cancellations and terminations, are due by September 3, 2020. All applications and supporting documents must be submitted via the Office of Hearings Case and Document Management System (OH CDMS) consistent with FFY2021 applications.
  • A new measurement of occupational mix is required for FFY2022. The Calendar Year (CY) 2019 Occupational Mix Survey was originally due July 1, 2020 via email attachment or overnight delivery to hospitals’ MACs; however, CMS is granting an extension until August 3, 2020 for hospitals nationwide. Refer to the final CY 2019 Occupational Mix Survey Hospital Reporting Form available on the CMS website at:

For additional information regarding wage index changes or updates, please contact Ryan Sader at

UC DSH Payments

CMS is proposing a decrease to Medicare UC DSH payments by $534M (or 6.4%), to $7.8B in FFY2021.  This decrease is driven by a $1.2B decrease in CMS’s estimation of national DSH payments for FFY2021, as compared to FFY2020.  National DSH payments are calculated under the former “empirical” method without accounting for changes from the ACA (i.e., Medicare UC DSH) in the determination of Factor 1 for UC DSH payments.

CMS has four significant proposals for UC DSH in FFY2021:

  • The most recent available single year of audited W/S S-10 will be used for Medicare DSH UC payments for all subsequent fiscal years. CMS proposed to add a new paragraph regarding this change under 42 CFR 412.106, “Special Treatment: Hospitals that serve a disproportionate share of low-income patients.”
  • Hospital UC DSH payments (Factor 3) are determined from one base-year of W/S S-10 UC costs from FFY2017 cost reports
  • To avoid the duplication of UC costs, hospitals acquired under a merger partway through the surviving hospital’s cost reporting period will not have their respective W/S S-10 UC cost data annualized
  • The trim methodology for all-inclusive rate providers (AIRP) will be modified. CMS proposes to recalculate UC costs for AIRPs, with UC costs greater than 50% of total operating costs, by applying a cost-to-charge ratio from the most recent available prior year cost report whereby UC costs are not greater than 50% of total operating costs.

Toyon is in the process of updating our national analysis to assist our clients with the evaluation of FFY2017 data used for FFY2021 UC DSH payments.  We will be providing this analysis over the coming weeks.

Toyon’s Take:  CMS’s projection of the uninsured population for Factor 2 includes insurance enrollment estimates through 2018.  Given the extraordinary events of COVID-19, projecting national uninsured rates may necessitate a more recent consideration of the timeliness of these estimates.

CMS’s proposal to use a single year of UC cost as the basis of UC DSH payments (Factor 3) is a significant change to the UC DSH reimbursement system.  Including this year’s audit of FFY2018 data (likely to be used for FFY2022 UC DSH payments), CMS and its MACs audited UC cost from W/S S-10 the last three years.

It is anticipated these audits will be an annual cycle of reported UC cost on the Medicare cost report.  The UC cost audits are also aligned when hospitals are preparing UC DSH listings on current year cost reports.  While annual audits are in place, Toyon recommends hospitals report current year UC DSH listings with the intent of amending these listings before or during the W/S S-10 audit. Moreover, from our work with MACs, it is Toyon’s understanding amended cost reports are NOT required to revise UC costs (rather this data is being documented independently resulting from the MAC audit schedules into the CMS HCRIS database).  

CMS’s use of FFY2017 data for FFY2021 payments also indicates the Agency’s decision to bypass the use of UC cost data from FFY2016.  As providers submit UC DSH listings for FFY2018 and subsequent years, Toyon recommends hospitals consider the appropriateness of reporting reversals related to FFY2016 UC cost write-offs.  In other words, it may not be appropriate to remove cost that CMS did not use in the development of UC DSH payments.

Click here for the DSH Supplemental PUF data.

Click here for the Analysis of UCC DSH Factor 1.

For additional information, please contact Fred Fisher at

High Percentage ESRD Discharge Hospitals

As noted previously, CMS proposed three new MS-DRGs for kidney transplant services with hemodialysis (MS-DRG 019, 650, and 651).  Accordingly, CMS has proposed to add these three MS-DRGs to the list of excluded MS-DRGs set forth in 42 CFR 412.104(a) when tabulating the additional payment for hospitals that have a higher percentage of Medicare ESRD beneficiaries.  In addition, CMS will be removing from the list of excluded MS-DRGs two DRGs that are no longer applicable.

An updated table of the excluded MS-DRGs is shown below:

Graduate Medical Education Changes for Residents in Closed Programs

To address concerns from stakeholders that their policy for allowing hospitals to seamlessly absorb displaced medical residents from closed programs is too restrictive, CMS is proposing to ease the current policy to match actual industry practice more closely.  The current CMS policy is that the definition of a displaced resident is one that is physically present at the hospital training on the day prior to or the day of the hospital or program closure.

In reality, residents begin their searches and programs begin accepting those residents soon after announcements are made that the hospital or program will be closing.  This allows residents to transfer to their new programs at a mutually convenient time with minimal disruption to their training.

CMS is proposing that the key day would now be the day that the closure was publicly announced (e.g., via a press release or formal notice to the ACGME), rather than the actual day of closure.  CMS is also proposing that the definition of a displaced resident be expanded to include individuals who have matched with the closed program but have not yet started training.  The revised definition of displaced residents is summarized in the table below:

These proposed changes would apply to the FTE cap transfer for displaced residents as well.  It is unclear when CMS intends this new policy to be effective, but presumably it would be effective immediately.

As an additional effort to reduce the amount of personally identifiable information (PII) in resident cap transfer agreements, CMS is also proposing to no longer require the full social security number of each resident but rather only the reporting of the last four digits.

For additional information, please contact Tom Hubner at

Rate Updates for Sole Community Hospitals (SCH) and Medicare-Dependent Hospitals (MDH)

CMS is proposing that the hospital-specific rates for SCHs and MDHs be updated by the following percentages, depending on the hospital’s ability to meet the different qualifying criteria:

Rural Referral Center (RRC) Annual Qualifying Data

Hospitals have different options to meet the RRC criteria set forth at 42 CFR 412.96.  For those that do not qualify under the 275-bed rule, other optional factors must be met.  Some of those factors are updated annually by CMS and include the following proposed amounts:

PRRB Procedural Flexibility

Since mid-2018, providers have been able to file appeal documents electronically with the Office of Hearings Case and Document Management System (OH CDMS).  Over 65 percent of all new appeals are now filed electronically, and CMS is proposing the following changes to enhance these numbers and reduce the administrative burden on the PRRB.

Proposed Changes:

  • “Date of Receipt” to be changed to mean date of electronic delivery for applicable documents
    • PRRB will continue to apply to receipts the presumed 5 days after the date of issuance
  • “In writing or written” defined to mean either hard copy or electronic submission
  • No earlier than FFY2021, the PRRB may update the Board instructions to require that all new submissions for new and pending appeals be filed electronically using OH CDMS
  • Subpoenas must now be sent via certified mail to ensure accordance with existing laws

For additional information, please contact Karen Kim at

Changes to Quality Programs

While CMS is proposing several changes to the hospital quality reporting and payment programs, none of these changes represent significant structural or procedural changes to the programs.

Hospital Inpatient Quality Reporting (IQR)

CMS is proposing to progressively increase, over a 3-year period, the number of quarters for which hospitals are required to report eCQM data, from the current requirement of one self-selected quarter of data to four quarters of data.

In addition, CMS has proposed reducing the number of hospitals selected for validation from up to 800 to up to 400 hospitals.

Furthermore, CMS is proposing to require the use of electronic file submissions via a CMS-approved secure file transmission process for chart abstracted measure validation.  This proposal would nullify the existing submission of paper copies of medical records or copies on digital portable media, such as CDs, DVDs, or flash drives.

Hospital Value Based Purchasing (HVBP)

CMS is not proposing to add or remove any measures for the FY2023 and FY2024 program years. 

Hospital Readmission Reduction (HRR)

CMS is not proposing to remove or adopt any additional measures at this time.  However, in an effort to simplify rulemaking, CMS is proposing the automatic adoption of applicable periods beginning with the FFY2023 program year.  The period of data collection will become a rolling three-year period applicable to the FFY payments two years after the applicable period ends, as noted below:

Hospital Acquired Conditions (HAC)

Similar to the HRR program, CMS is proposing the automatic adoption of applicable periods beginning with the FFY2023 program year, as noted below:

Other Rules, Transmittals, and Articles Recently Published

Inpatient Psych Facility PPS FFY2021 Proposed Rule [CMS-1731-P]

(Display Copy available 4/10/2020; FR Publish Date 4/14/2020)

Fact Sheet Link

Federal Register Link

  • Per diem base rate increase from $798.55 to $817.59.
  • Will apply the most recent CBSA delineations and will have a 2-year transition for all providers negatively impacted by WIF changes.


Inpatient Rehab Facility PPS FFY2021 Proposed Rule [CMS-1729-P]

(Display Copy available 4/19/2020; FR Publish Date 4/21/2020)

Fact Sheet Link

Federal Register Link

  • Standard payment conversion factor increase from $16,489 to $16,847.
  • Will apply the most recent CBSA delineations and will have a 2-year transition for all providers negatively impacted by WIF changes.

Long-Term Care Hospital PPS Proposed Rule [CMS-1735-P]

(Display Copy available here 5/11/2020; FR Publish Date 5/29/2020) – Published as part of the IPPS Acute Care Hospital Proposed Rule

Fact Sheet Link

Federal Register Link

  • LTCH-PPS payments expected to increase by 0.9% or $36M.
  • Payments for cases that will complete the statutory transition to the lower payment rates under the dual rate system are expected to decrease by approximately 20%. This accounts for the LTCH site neutral payment rate cases that will no longer be paid a blended payment rate with the end of the statutory transition period, which represent 25% of all LTCH cases.


Skilled Nursing Facility FFY2021 PPS Proposed Rule [CMS-1737-P]

(Display Copy available 4/10/2020; FR Publish Date 4/15/2020)

Fact Sheet Link

Federal Register Link

  • Increase in unadjusted Federal per diem rates of 2.3%
  • Proposal to update the SNF VBP program and to change code mappings for case-mix groups


Back to top

CMS Proposes Policy & Payment Rate Changes for ESRD Facilities in 2013 and Bad Debt Reductions, etc.

Federal Register – CMS-1352-P; Posted 7/2/12; FR Pub 7/11/12 – Proposed Rules


This rule proposes to update and make revisions to the End-Stage Renal Disease

(ESRD) prospective payment system (PPS) for calendar year (CY) 2013. This rule also proposes to set forth requirements for the ESRD quality incentive program (QIP), including for payment year (PY) 2015 and beyond. This proposed rule will implement changes to bad debt reimbursement for all Medicare providers, suppliers, and other entities eligible to receive bad debt. (See theTable of Contents for a listing of the specific issues addressed in this proposed rule.)

The proposed rules for Medicare bad debt reductions are a result of Section 3201 of The Middle Class Tax Extension and Job Creation Act of 2012. CMS issued the following table that summarizes the impact of the bad debt reductions starting in FFY 2013 and will be fully implemented by FFY 2015. The first implementation will be for cost reporting periods beginning on or after 10/1/12.


Provider Type

FY 2012

FY 2013

FY 2014

FY 2015






SNFs: Not Dual Elig





SB Hosp: Not Dual Elig





SNFs: Dual Elig





SB Hosp: Dual Elig










ESRD Facilities




















Cost Based HMOs





Health Care Prep Pay Plans





Competitive Med Plans





CMS Proposes Policy & Payment Rate Changes for ESRD Facilities in 2013 and Bad Debt Reductions, etc.

Back to top
Toyon Associates Healthcare Finance


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