Hospital Payments at Risk in Medicare Inpatient Rule
The Centers for Medicare & Medicaid Services (CMS) released the FY 2023 proposed Inpatient Prospective Payment System (IPPS) rule. Watch for CLA’s full FY 2023 IPPS Regulatory Advisor coming soon on CLAconnect or by subscribing to CLA communications. Today we focus on several Medicare add-on payments – DSH, Medicare Dependent and Low Volume Adjustment.
Medicare Disproportionate Share Hospital (DSH) Payments
Under the Affordable Care Act and based on the assumption that more individuals would have insurance, Medicare’s DSH payments were altered. While hospitals continue to receive 25% of their prior DSH payments, they now only receive a portion of the remaining 75% pool based on respective uncompensated care levels. For FY 2023, CMS proposes to distribute $6.54 billion in these DSH payments which the agency indicates is a decrease of $654 million compared to FY 2022.
To determine the distribution of this 75% pool, CMS uses three factors, which are updated in the annual IPPS rule. For FY 2023, CMS proposes the following:
- Factor 1 is the amount of funds in the 75% pool. In other words, this is total DSH payments minus the 25% that goes directly to hospitals. CMS proposes the 75% pool to be $9.949 billion in FY 2023.
- Factor 2 is a calculation of the percent change in the uninsured rate. CMS proposes this percent change is 0.6571 or 65.71%. Factor 2 is then determined as follows: $9.949 billion x 0.6571 = $6.54 billion
- Factor 3 represents each hospital’s portion of the 75% pool compared to all other hospitals. CMS uses audited cost report worksheets to determine this amount. For 2023, CMS proposes using the average of the audited FY 2018 and FY 2019 Worksheet S-10 reports instead of basing it on a single year which it did in FY 2022.
In the future, CMS also proposes in FY 2024 that Factor 3 will be based on a three-year average of the uncompensated care data from the three most recent fiscal years for which audited data are available.
On a related note, CMS also proposes to change the calculation of the Medicaid fraction of the DSH calculation. Looking at the definition of patients that are “regarded as eligible for Medicaid,” CMS proposes that only patients who receive health insurance through or purchase health insurance with premium assistance at 90% or higher and authorized under a Section 1115 demonstration would qualify. CMS does not consider uncompensated care pools or other 1115 demonstrations that don’t offer comprehensive benefits as meeting necessary requirements.
Medicare Dependent Hospitals (MDH)
MDH is a designated payment for hospitals with at least 60% of inpatient days coming from Medicare. The hospital must also be rural and have 100 or fewer beds. There are roughly 180 MDHs across the country. MDH designation is statutorily authorized but is not permanent. MDH was last extended under the Bipartisan Budget Act of 2018 (BBA 2018) through September 30, 2022. If Congress does not act before October 1, this designation ends. CMS indicates hospitals will be paid the normal federal rate beginning in October.
CMS has previously codified a policy to allow MDHs to apply to be a sole community hospital (SCH), if qualified, in advance of MDH designation expiring. To do so, an MDH must apply for SCH designation at least 30 days prior to September 30, 2022, or by September 1, 2022, and indicate it wants SCH to take effect immediately after MDH expires (ie: October 1, 2022). Failure to apply by September 1, 2022, means the normal process to apply must be followed.
Low Volume Adjustment (LVA)
Unlike the MDH, the LVA designation does not end on September 30; however, several key qualifying criteria are significantly narrowed unless Congress acts. Congress expanded the qualifying criteria for LVAs under the BBA 2018. That expansion allows hospitals with fewer than 3,800 total discharges based on the most recently submitted cost report and that are more than 15 road miles from the nearest subsection (d) hospital (ie: PPS hospital) to qualify.
Without Congressional action, the LVA reverts to its pre-2011 criteria (less than 200 total discharges; more than 25 road miles). See table below for criteria comparison.
| LVA Criteria By Date | Total Discharges | Miles From Nearest PPS Hospital |
|---|---|---|
| Through Sept. 30, 2022 | <3,800 | >15 miles |
| Beginning Oct. 1, 2022 (without Congressional action) | <200 | >25 miles |
Approximately 600 hospitals currently benefit from LVA payments. This is almost 20% of all PPS hospitals.
Federal legislation called the Rural Hospitals Support Act (HR 1887/S 4009) has been introduced to address MDH and LVA. However, Congress is dealing with other significant issues plus this is an election year, which makes passing any legislation before October 1 more complicated.
How we can help
Each of these add-on payments address specific situations of need. Understanding the proposed IPPS rule, how your cost reports fit in, quantifying changes to MDH, LVA or DSH, and what you should do now is important. Talk to your CLA advisor today. We’re here to help.
Jennifer Boese is the Director of Health Care Policy at CLA. She is a highly successful public policy, legislative, advocacy and political affairs leader, including working in both the state and federal government as well as the private sector. She brings over 20 years of government relations and public policy knowledge with her to CLA. Well over half of her career has been spent dedicated to health care policy and the health care industry, affording her a deep understanding of the health care market and environment, health care organizations and health care stakeholders. Her role at CLA is to provide thought leadership, policy analysis and strategic insights to health care providers across the continuum related to the industry's ongoing transformation towards value. A key focus of that work is on market innovations and emerging payment models. Her goal is to help CLA clients navigate and thrive in an increasingly dynamic health care environment.
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