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Medicare DSH – Uncompensated Care (UC) Financial Assistance Policy Recommendations

Thank you for working with Toyon Associates and our Uncompensated Care Recognition Services (UCRS).  CMS’s requirements for reporting UC cost, and subsequent UC Disproportionate Share (DSH) payments, rely heavily on ever-changing regulations and language in the financial assistance policy (FAP).  Importantly, as recently reported in the FFY 2021 IPPS Final Rule, CMS states:

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

A hospital’s determination of its own financial charity care criteria – likely within reason of patients qualifying under federal poverty level [FPL] thresholds – provides hospitals discretion on how patient financial discounts are articulated in the FAP.   

To compliantly position hospitals for this important impact on reimbursement, Toyon is sharing recommended language for FAP consideration as it relates to Medicare UC DSH.  Toyon’s recommendations[1] are to assist hospitals compliantly report core areas of UC cost on worksheet S-10 of the Medicare cost report. 

For assistance on implementing best practices for FAP language and associated means of capturing the charges written off as charity care, please contact Toyon’s lead of Uncompensated Care Recognition Services, Fred Fisher at 888.514.9312,

Toyon’s recommendations are focused on the following UC cost areas:

  • Charity care for insured and underinsured
  • Self-pay discounts
  • Discounts to insurers with no contractual or inferred contractual relationship[2]
  • Presumptive charity eligibility process
  • Non-covered and denied Medicaid as charity care
  • Bad Debt and Implied Price Concessions

Below are Toyon’s updated recommendations for FAP language related to Medicare cost report worksheet S-10 and UC DSH.  Some of Toyon’s recommendations include FAP language italicized in blue.  Any language changes considered by hospitals and health systems should follow the appropriate approval procedure with hospital leadership / board of directors.

  1. Non-Covered Charges for Medicaid or other Indigent Care Program

Medicare cost report instructions allow charges related to “non-covered services for Medicaid eligible patients” to be included as UC cost, provided this coverage is specified in the FAP.  There are different industry interpretations regarding the level of specificity of non-covered Medicaid that must be in an FAP.  Toyon recommends hospitals consider FAP language stating:

“Non-covered and denied services provided to Medicaid eligible beneficiaries are considered a form of charity care.  Medicaid beneficiaries are not responsible for any forms of patient financial liability and all charges related to services not covered, including all denials, are charity care.  Examples may include, but are not limited to:

  • Services provided to Medicaid beneficiaries with restricted Medicaid (i.e., patients that may only have pregnancy or emergency benefits, but receive other hospital care)
  • Medicaid-pending accounts
  • Medicaid or other indigent care program denials
  • Charges related to days exceeding a length-of-stay limit
  • Out-of-state Medicaid claims with no payment”

  1. Presumptive Charity Care

In the FFY 2021 IPPS Final Rule, CMS affirmed presumptive eligibility tools are not allowable to determine patient financial status for Medicare bad debt reporting[3].  Toyon recommends the following regarding presumptive charity care determinations are applied by hospitals:

  • Presumptive charity care is applied to everyone except indigent Medicare fee for service patients.
  • For all patients receiving presumptive eligibility to qualify for financial assistance, it is recommended hospitals maintain a log of each instance, as well as any documentation from an outside agency to support presumptive eligibility (such as PARO like resources).

  1. Patient Billing – External Collection Agencies

Hospitals may discover additional charity care associated with patient accounts in collections.   Typically, outstanding patient receivables relate to coinsurance, copayment and deductible (C+D) amounts.  This is a significant population, considering when C+D are reported as charity care, these amounts are not reduced by the cost to charge ratio. 

Toyon recommends hospitals consider updating the FAP language to include additional information when charity is discovered during the collections process.  Example language may state:

Discovery of Patient Financial Assistance Eligibility During CollectionsDetermination of patient financial assistance as close to the time of service as possible is optimal.  However, additional time and resources are sometimes required to determine eligibility, and therefore some patients eligible for financial assistance may have not been identified as eligible for patient financial assistance prior to initiating external collection action.  Collection agencies shall be made aware of this possibility and are requested to refer-back patient accounts that may be eligible for financial assistance. When it is discovered an account is eligible for financial assistance, [Hospital | Health System] will reverse the account out of bad debt and document the respective discount in charges as charity care.” 

  1. Insured Patients Not Under Contract with the Hospital

Related to HHS CARES Provider Relief Funding (PRF)

CMS permits UC costs can include “patients with coverage from an entity that does not have a contractual relationship with the provider who meet the hospital’s FAP.”  

For cost reports beginning on after October 1, 2020, CMS clarifies providers may report amounts related to inferred contractual relationships.  CMS defines an inferred contractual relationship in new cost report instructions[4] as:

“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”

Also importantly, the Terms and Conditions (T&C) for providers receiving CARES Provider Relief Funding prohibit billing in excess of:

“…an amount greater than what the patient would have otherwise been required to pay if the care had been provided by an in-network Recipient”.

Toyon recommends hospitals update FAP language to:

  • Stipulate when a carrier is “under contract” vs. obligated to reimburse the hospital as an “inferred contractual relationship”; and
  • Confirm “out of network” for a presumptive or actual case of COVID-19 is provided at an amount no greater than if the care was provided at an in-network provider.
  • Listed below is FAP language for hospital consideration:

Insured Patients Not Under Contract with the Hospital”Negotiations with insurance carriers involving inferred contractual relationships, for insured patients not under contract with [hospital / health system] will be conducted by executive management at [hospital/health system]. Although [hospital / health system] may agree to the terms of the negotiations with insurance companies, an inferred contractual relationship is not representative of a patient “under contract” with [hospital / health system]. All unreimbursed amounts are a form of patient financial assistance and determined as the difference between gross hospital charges and hospital reimbursement. Any care provided to a presumptive or actual case of COVID-19 is provided at an amount no greater than what the patient would have otherwise been required to pay if the care had been provided by an in-network provider.”

  1. Financial Assistance for Patients with Insurance

Medicare cost report instructions allow and differentiate[5] the reporting of financial assistance for insured patients as:

  • Amounts related to charity C+D amounts. These amounts have a material impact on the determination of uncompensated care cost, as they are not reduced by the cost to charge ratio.
  • Charges representing an insured patient’s liability for medically necessary hospital services, other than Charity C+D amounts. These amounts are reduced to cost using a hospital’s overall cost to charge ratio.

Toyon recommends hospitals consider updating FAPs, articulating insured patients are eligible for discounts related to charity C+D amounts as well as charge discounts to an insured patient’s liability for medically necessary hospital services. 

  1. Access to Healthcare Crisis FAP Language

In recognition for the extraordinary demand pandemics have on the healthcare system (including COVID-19), Toyon has crafted the FAP language below.  This is draft template language to assist hospitals if necessary.

“An Access to Healthcare Crisis must be proclaimed by [hospital leadership / approved by the board of directors] and attached to this patient financial assistance document as an addendum.  An Access to Healthcare Crisis may be related to an emergent situation whereby state / federal regulations are modified to meet the immediate healthcare needs of [hospital / health system’s] community during the Access to Healthcare Crisis.  During an Access to Healthcare Crisis [hospital / health system] may “flex” its patient financial assistance policy to meet the needs of the community in crisis.  These changes will be included in the patient financial assistance policy as included as an addendum.  Patient discounts related to an Access to Healthcare Crisis may be provided at the time of the crisis, regardless of the date of this policy (as hospital leadership may not be able to react quickly enough to update policy language in order to meet more pressing needs during the Access to Healthcare Crisis).”  


We appreciate the opportunity to provide regulatory and reimbursement services to you and your team.  At any point in time, should you have any questions about our work, or need any further assistance, please contact Fred Fisher at 888.514.9312,


Toyon Associates, Inc.

[1] FAP language changes should follow the approval procedure with hospital leadership / board of directors.

[2] 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.

[3] Per the FFY 2021 IPPS Final Rule, related to Medicare Bad Debts Although presumptive eligibility tools may reduce a provider’s burden when evaluating indigence, we disagree that presumptive eligibility tools should be used to determine a Medicare beneficiary’s indigence status for Medicare bad debt purposes.”


[5] For cost reports beginning on/after October 1, 2020. 

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CMS Publishes Rule in apparent response to Allina II Ruling

Last week, CMS published a proposed rule on the treatment of Medicare Advantage (MA) Part C days for discharges prior to October 1, 2013, related to the Medicare DSH calculation.

This proposed rule is purportedly CMS’s long awaited response to the United States Supreme Court’s ruling in Azar v. Allina Health Services, 139 S. Ct. 1804 (2019) (“Allina II”), wherein the Supreme Court upheld a lower court ruling that HHS violated the Medicare Act when it changed its DSH reimbursement formula without providing notice and opportunity for comment. 
As you know, HHS arbitrarily began including Part C days in the Medicare fraction through its 2004 Final Rule, and Toyon has been helping Providers in appealing the agency’s actions on the basis that only Medicare Part A days should be included in the SSI ratio and that dual eligible Part C days belong in the numerator of the Medicaid ratio. While the Supreme Court in Allina II did not rule on the merits of Providers’ position, it did rule that HHS violated its rulemaking obligations by including Part C days in the Medicare fraction between 2004 and 2012. This court ruling should have resulted in CMS restoring the status quo and reinstating HHS’ prior-to-2004 policy (wherein Part C days were NOT included in the Medicare fraction). Such actional would have resulted in substantial additional DSH reimbursement to Providers. 
What it Means to You
Instead, CMS’s proposed rule, published August 6, 2020, states that CMS proposes to “adopt the same policy of including MA patient days in the Medicare fraction that was prospectively adopted in the FY 2014 IPPS/LTCH PPS final rule and to apply this policy retroactively to any cost reports that remain open for cost reporting periods starting before October 1, 2013.” This proposed rule is tantamount to CMS simply disregarding the Supreme Court Allina II ruling in favor of Providers, as the 2014 Final Rule applies CMS’s same flawed policy of including Part C days in the SSI ratio for FYEs 2004-2012. CMS alleges it has the authority to apply this rule retroactively under the guise that it is in the ”public interest.” 85 Fed. Reg. 47,723; 47,725-56 (Aug. 6, 2020).
What now?
Our attorneys (Ropes & Gray) filed a response in the US District Court for the District of Columbia on Friday, objecting to HHS’s proposed rule and requesting the Court entertain further briefing and hearings on HHS’s motion requesting remand of the cases to the agency. A copy of the response is linked here. We will provide you with additional updates as this matter unfolds.
Please contact Karen S. Kim at (925) 685-9312 or if you have any questions or concerns. 
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FFY 2020 Medicare IPPS Final Rule – Correction Notice

CMS-1716-CN2 Published in the Federal Register on 10/8/2019
On October 8, 2019, the Centers for Medicare & Medicaid Services (CMS) issued a correction to the recent FFY2020 IPPS Final Rule in order to address errors in the V. 37 MS-DRG assignments and relative
weights. In addition, CMS is correcting technical errors in the calculation of Factor 3 of the Uncompensated Care DSH. These changes required a recalibration of the IPPS and LTCH PPS base rates, budget neutrality factors, final wage indices, and final outlier threshold, as well. As a result, CMS issued revisions to Tables 1-5, 7, and 18, as well as the DSH Supplemental File and the Impact File.

Because all the changes are effective for discharges on or after October 1, 2019, CMS will be holding IPPS and LTCH PPS claims with discharges on or after October 1 through October 21, 2019.

Overall, the corrected Final Rule is projected to result in an immaterial change in payments to providers from the original Final Rule. The Federal base rate is expected to decrease by 0.1% and the median change in UC DSH payments to most hospitals is favorable by 0.0819%. However, some
specific hospitals will see significant increases or decreases based on the adjustments made to the UCC costs by CMS and its contractors.

Medicare IPPS Base Rates 
CMS is increasing the base rate 2.7% for hospitals, mostly driven by a market basket increase of 3.0%.
FFY2020 Medicare IPPS Final Rule
MS-DRG v 37 Changes
As noted, CMS has revised the MS-DRG weights for FFY2020.
Click here for a table of the MS-DRG v36 to v37 comparison.

UC DSH Payments

CMS also revised the UC DSH Supplemental file and related Table 18 for Factor 3 values, in order to correct for hospitals where a MAC had accepted an amended report and/or adjusted cost report data but for which revisions had been inadvertently omitted from the HCRIS data used. UC DSH payments were materially corrected for nine California hospitals as a result of CMS agreeing to remove “expected payments” from the cost of charity care in FFY2015.
Toyon’s Take: Hospitals should continue to work with their MACs to ensure that the latest revised data has been incorporated into the HCRIS data used by CMS for the publication of any rules. We anticipate that FFY2017 data will be used next to establish the FFY2021 UC DSH payments. This data will be gathered from FYE 9/30/2017, 12/31/2017, 3/31/2018, or 6/30/2018 cost report Worksheet S-10.
For FFY2017 uncompensated care amounts, there is a new set of reporting instructions. There is considerable industry agreement that these instructions are less challenging than instructions in place for FFY2015.
Recommended Action: If your hospital has revisions to its FFY 2017 WS S-10 data, Toyon strongly urges that these revisions be submitted to your MAC before December 31, 2019. This is the deadline for MACs to submit FFY 2017 S-10 revisions for hospitals under audit.
Click here for the DSH Supplemental PUF data.
Toyon has a new national analysis tool to assist hospitals with the evaluation of uncompensated care and the relationship to current and projected DSH UC payments. For additional information, please contact Fred Fisher at
Rate Updates for Sole Community (SCH) and Medicare-Dependent Hospitals (MDH)
CMS did not revise the update factors for the hospital-specific rates of SCHs and MDHs noted below:  
FFY2020 Medicare IPPS Final Rule
However, you will need to be sure to apply the updated recalibrated budget neutrality adjustment factor of 0.996859 to your factor updates.
Other Updates
New Billing Requirements for Periodic Interim Payment (PIP) Providers
For those few hospitals that receive bi-weekly PIP payments, in lieu of operating IPPS DRG payments, CMS issued an update to Pub. 100-04, Chapter 1, Section 80.4. This revision, effective February 19, 2019, requires that providers bill timely and accurately.
In order to remain on PIP, providers must submit 85% of their bills timely and accurately. To meet this standard, bills must be submitted within 30 days of discharge and pass front-end edits for consistency and completeness. Evaluation by the MAC will occur in 4-month intervals for hospitals.
Note: If the provider does not meet these criteria, the MACs are instructed to discontinue PIP immediately.
Evaluation of the 30-day timeline will be based on the difference between the date on Form CMS-1450 FL6 (“Through Date”) and the date received by the MAC. A bill is not considered received unless it can pass MAC edits.
The evaluation of accurate bills excludes the following:
  • MSP cases
  • Special situations beyond the provider’s control that are documented by the MAC and approved by the RO
  • Bills that have not passed MAC front-end edits for acceptance. (Such bills are counted only when acceptable to the shared system edit processes.)
The tabulation of the error percentage is calculated in the following manner:
              Timely and Accurate %  =  Number of non-excluded bills received in 30 days or less
                                                                Total number of bills received
Toyon’s Take: MACs have started to send monthly “PIP Compliance Review Result” letters to providers as warnings when they’re not in compliance for any given month. You should review this manual section and work with your revenue cycle team to ensure that they are aware of these rules, understand the implications for failure to meet these criteria, and are continually monitoring for compliance.
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